House Hearing, 112TH Congress - Examining Consumer Credit Access Concerns, New Products, and Federal Regulations

EXAMINING CONSUMER CREDIT ACCESS
CONCERNS, NEW PRODUCTS, AND

FEDERAL REGULATIONS
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
JULY 24, 2012
Printed for the use of the Committee on Financial Services
Serial No. 112149
(
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON
76120 PDF
2013
For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 5121800; DC area (202) 5121800
Fax: (202) 5122104 Mail: Stop IDCC, Washington, DC 204020001
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00001
Fmt 5011
Sfmt 5011
K:\DOCS\76120.TXT
TERRI
HOUSE COMMITTEE ON FINANCIAL SERVICES

SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice Chairman
PETER T. KING, New York
EDWARD R. ROYCE, California
FRANK D. LUCAS, Oklahoma
RON PAUL, Texas
DONALD A. MANZULLO, Illinois
WALTER B. JONES, North Carolina
JUDY BIGGERT, Illinois
GARY G. MILLER, California
SHELLEY MOORE CAPITO, West Virginia
SCOTT GARRETT, New Jersey
RANDY NEUGEBAUER, Texas
PATRICK T. MCHENRY, North Carolina
JOHN CAMPBELL, California
MICHELE BACHMANN, Minnesota
THADDEUS G. McCOTTER, Michigan
KEVIN McCARTHY, California
STEVAN PEARCE, New Mexico
BILL POSEY, Florida
MICHAEL G. FITZPATRICK, Pennsylvania
LYNN A. WESTMORELAND, Georgia
BLAINE LUETKEMEYER, Missouri
BILL HUIZENGA, Michigan
SEAN P. DUFFY, Wisconsin
NAN A. S. HAYWORTH, New York
JAMES B. RENACCI, Ohio
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO QUICO CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
BARNEY FRANK, Massachusetts, Ranking

Member
MAXINE WATERS, California
CAROLYN B. MALONEY, New York
LUIS V. GUTIERREZ, Illinois
ZQUEZ, New York
NYDIA M. VELA
MELVIN L. WATT, North Carolina
GARY L. ACKERMAN, New York
BRAD SHERMAN, California
GREGORY W. MEEKS, New York
MICHAEL E. CAPUANO, Massachusetts
N HINOJOSA, Texas
RUBE
WM. LACY CLAY, Missouri
CAROLYN MCCARTHY, New York
JOE BACA, California
STEPHEN F. LYNCH, Massachusetts
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
AL GREEN, Texas
EMANUEL CLEAVER, Missouri
GWEN MOORE, Wisconsin
KEITH ELLISON, Minnesota
ED PERLMUTTER, Colorado
JOE DONNELLY, Indiana
CARSON, Indiana
ANDRE
JAMES A. HIMES, Connecticut
GARY C. PETERS, Michigan
JOHN C. CARNEY, JR., Delaware
JAMES H. CLINGER, Staff Director and Chief Counsel
(II)
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00002
Fmt 5904
Sfmt 5904
K:\DOCS\76120.TXT
TERRI
SUBCOMMITTEE
ON
FINANCIAL INSTITUTIONS
AND
CONSUMER CREDIT
SHELLEY MOORE CAPITO, West Virginia, Chairman

JAMES B. RENACCI, Ohio, Vice Chairman
EDWARD R. ROYCE, California
DONALD A. MANZULLO, Illinois
WALTER B. JONES, North Carolina
JEB HENSARLING, Texas
PATRICK T. MCHENRY, North Carolina
THADDEUS G. McCOTTER, Michigan
KEVIN McCARTHY, California
STEVAN PEARCE, New Mexico
LYNN A. WESTMORELAND, Georgia
BLAINE LUETKEMEYER, Missouri
BILL HUIZENGA, Michigan
SEAN P. DUFFY, Wisconsin
FRANCISCO QUICO CANSECO, Texas
MICHAEL G. GRIMM, New York
STEPHEN LEE FINCHER, Tennessee
CAROLYN B. MALONEY, New York,

Ranking Member
LUIS V. GUTIERREZ, Illinois
MELVIN L. WATT, North Carolina
GARY L. ACKERMAN, New York
N HINOJOSA, Texas
RUBE
CAROLYN MCCARTHY, New York
JOE BACA, California
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
ZQUEZ, New York
NYDIA M. VELA
GREGORY W. MEEKS, New York
STEPHEN F. LYNCH, Massachusetts
JOHN C. CARNEY, JR., Delaware
(III)
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00003
Fmt 5904
Sfmt 5904
K:\DOCS\76120.TXT
TERRI
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00004
Fmt 5904
Sfmt 5904
K:\DOCS\76120.TXT
TERRI
CONTENTS
Page
Hearing held on:

July 24, 2012 .....................................................................................................
Appendix:
July 24, 2012 .....................................................................................................
1
57
WITNESSES
TUESDAY, JULY 24, 2012
Berlau, John, Senior Fellow, Finance and Access to Capital, the Competitive
Enterprise Institute (CEI) ...................................................................................
Bishop, Frances C., owner, Dollar Pawn, Inc., on behalf of the National
Pawnbrokers Association and the Alabama Pawnbrokers Association ...........
Edwards, Kenneth W., Vice President, Federal Affairs, the Center for Responsible Lending (CRL) .............................................................................................
Flores, G. Michael, Chief Executive Officer, Bretton Woods, Inc. .......................
Gardineer, Grovetta, Deputy Comptroller for Compliance Policy, Office of
the Comptroller of the Currency (OCC) .............................................................
Jackson, Mary, Senior Vice President, Corporate Affairs, Cash America International .................................................................................................................
Munn, Hon. John, Director, Banking and Finance, State of Nebraska Department of Banking and Finance, on behalf of the Conference of State Bank
Supervisors (CSBS) ..............................................................................................
32
31
34
35
7
30
9
APPENDIX
Prepared statements:
Berlau, John ......................................................................................................
Bishop, Frances C. ............................................................................................
Edwards, Kenneth W. ......................................................................................
Flores, G. Michael ............................................................................................
Gardineer, Grovetta .........................................................................................
Jackson, Mary ...................................................................................................
Munn, Hon. John ..............................................................................................
ADDITIONAL MATERIAL SUBMITTED
FOR THE
RECORD
Capito, Hon. Shelley Moore:

Written statement of Americans for Financial Reform .................................
Baca, Hon. Joe:
Written statement of The Hispanic Institute .................................................
Luetkemeyer Hon. Blaine:
Written statement of The 60 Plus Association ...............................................
Written statement of Quik Pawn Shop ...........................................................
Written statement of Hon. Mark L. Shurtleff, Attorney General, State
of Utah ...........................................................................................................
Edwards, Kenneth W.:
Written responses to questions submitted by Representatives
Luetkemeyer and Baca .................................................................................
Gardiner, Grovetta:
Written responses to questions submitted by Representative Baca ............
Written responses to questions submitted by Representative
Luetkemeyer ..................................................................................................
Written statement of William M. Isaac, former Chairman, FDIC ......................
(V)
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00005
Fmt 5904
Sfmt 5904
58
65
74
80
114
125
127
K:\DOCS\76120.TXT
TERRI
143
150
152
154
156
161
167
169
171
VI
Page
Munn, Hon. John:

Written responses to questions submitted by Representatives
Luetkemeyer and Baca .................................................................................
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00006
Fmt 5904
Sfmt 5904
K:\DOCS\76120.TXT
TERRI
173
EXAMINING CONSUMER CREDIT ACCESS

CONCERNS, NEW PRODUCTS, AND
FEDERAL REGULATIONS
Tuesday, July 24, 2012
U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT,
COMMITTEE ON FINANCIAL SERVICES,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10 a.m., in room
2128, Rayburn House Office Building, Hon. Shelley Moore Capito
[chairwoman of the subcommittee] presiding.
Members present: Representatives Capito, Renacci, Royce,
Hensarling, Pearce, Westmoreland, Luetkemeyer, Huizenga,
Grimm, Fincher; Maloney, Watt, Hinojosa, Baca, Scott, Meeks, and
Carney.
Also present: Representatives Schweikert, Sessions, and Green
Chairwoman CAPITO. The hearing will come to order. I would
like to first thank my colleagues, Mr. Luetkemeyer and Mr. Baca,
for their hard work on the legislation before us today. This subcommittee held a hearing last fall on issues about access to consumer credit for borrowers who may not have the ability to use traditional sources of credit. H.R. 6139 is an attempt to address some
of the potential inequities in the current regulatory structure for
nondepository institutions and consumers.
The recent economic downturn and anemic recovery have highlighted the difficult environment for consumers to access credit. A
recent National Bureau of Economic Research study found that
nearly 50 percent of Americans are unlikely or unable to raise
$2,000 in case of an emergency with 30-days notice. And we know
this frequently occurs in many American families, an emergency
that needs to be addressed.
Furthermore, the FDIC found that nearly 25 percent of American
households have trouble accessing credit from traditional sources
like banks and credit unions. These tough economic times are highlighting, I think, the need for innovation and diversity in financial
products. Last fall, the subcommittee had a hearing on innovation
in the consumer credit market. Entrepreneurs across the country
are developing new and innovative techniques and methods for consumers to access credit from nontraditional sources. Technology is
providing new ways to analyze data and create platforms to distribute credit in a more cost-effective, transparent manner.
(1)
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00007
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
2
We have also learned, through a series of hearings on the future
of money, that it is entirely possible that consumers may become
less reliant on traditional financial institutions as more payment
services are driven towards mobile devices. H.R. 6139 is an important part of a broader discussion about how these financial products should be regulated. The majority of these products are currently subject to a patchwork of State regulatory regimes. In some
States, consumers have access to a broad array of products, whereas in other States, there is little or no access to consumer credit
from institutions outside of the traditional sources of banks and
credit unions.
Title X of Dodd-Frank grants supervisor authority for some nondepository institutions. The legislation before us today creates an
optional Federal charter for nondepository creditors. They will be
housed within the OCC. I look forward to hearing our witnesses
testimony on H.R. 6139 as well as the overall need to keep up with
the innovation in nontraditional financial products.
I now recognize Mrs. Maloney, my ranking member, for 4 minutes for the purpose of making an opening statement.
Mrs. MALONEY. I want to thank the chairlady for calling the
hearing, and I also thank all of our witnesses for being here. I am
looking forward to the updated version of the bill that my colleaguesMr. Baca and Mr. Luetkemeyerhave introduced that
would give non-banks an optional Federal charter, allowing them
to operate nationally to give small loans.
I do want to say that this hearing is focused on what is a real
problem in American society today. The amount of personal family
debt is growing, credit card debt is over $1 trillion, and student
loans have surpassed credit card debt. And I would say around the
kitchen tables of America, many people are just trying to figure out
how to make ends meet.
One colleague told me a story about a mother whose car broke
down. It needed a new transmission, so she needed a loan of $2,000
to fix her car. So where does she go to get this loan? Most credit
unions and banks wouldnt give a loan of that small amount. It
would be difficult to get.
So there is a need in our structure for small loans and access to
them. But until the financial reforms that were enacted in 2010,
non-banks were exclusively regulated at the State level. But as we
worked to revamp our financial system, we saw gaping holes in
regulation and consumers were often on the losing end of the deal.
The FTC had some oversight for these non-bank loans.
Now that we have the Consumer Financial Protection Bureau
(CFPB) with its sole mission of consumer protection across the financial industry, including non-banks, there will be a Federal regulator exercising authority over certain non-banks consulting with
the FTC. And States like New York will still be able to exercise
their authority to set a ceiling for consumer protection.
For example, New York has imposed a usury cap of 16 percent
on consumer and personal loans. Most payday and low-dollar loans
are not permitted in the State because they almost always carry
interest rates higher than 16 percent. However, we cannot deny
that lower-income and underbanked consumers often turn to shortterm loans to make it to the next paycheck. Some consumers are
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00008
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
3
turning to the Internet for these products and to financial entities
that are located offshore and away from all regulatory scrutiny.
This is the main argument by proponents of the bill that is before us today, that consumers are turning to offshore entities which
provide predatory products to consumers who have nowhere else to
go. The bill we are reviewing today will preempt State laws for an
entity that wishes to pursue a Federal charter with the OCC. The
OCC, which is traditionally a safety and soundness regulator of
banks, would be the principal regulator for these entities, and they
have expressed some significant concerns about the bill.
So I hope that this hearing will shed light on the entire question.
And the questions that I have are: is the OCC the appropriate
agency to be approving appropriate consumer products for the
underbanked and underserved communities; and are consumers
going to be sufficiently protected in creating this charter? So I look
forward to the comments and to the testimony today. Thank you.
Chairwoman CAPITO. Thank you.
Mr. Luetkemeyer for 3 minutes.
Mr. LUETKEMEYER. Thank you, Madam Chairwoman, and thank
you for holding this hearing to discuss what I believe is a very important topic: greater access to credit. I also want to thank the gentleman from California, Mr. Baca, for his hard work on this issue.
He has been a dedicated leader on this subject and I greatly appreciate his efforts.
At a time when nearly half of all Americans are living paycheck
to paycheck, we cannot continue to operate without innovation in
the credit sector. It is essential to begin to understand the true
needs of American families in trying to address the problems that
continue to plague them. H.R. 6139, the Consumer Credit Access,
Innovation, and Modernization Act, will allow for and even encourage the development of new and badly needed financial products.
And it does so under strict regulatory guidelines without jeopardizing consumer safety.
Let me be clear, this is not a payday lending bill. In fact, this
legislation bars new federally-chartered institutions from making
loans for terms less than 30 days. Again, this legislation prohibits
payday loans, and other loans with terms of less than 30 days. This
legislation also requires the OCC to approve or deny any and all
products and to coordinate with the CFPB, the Attorney General,
and other State regulators. With that, Madam Chairwoman, I request unanimous consent to insert in the record a letter of support
and a statement from Mark Shurtleff, Attorney General of Utah,
and also a letter of support from The 60 Plus Association.
Chairwoman CAPITO. Without objection, it is so ordered.
Mr. LUETKEMEYER. Thank you, Madam Chairwoman.
We can sit here and say that consumers dont need these products, and we can continue to say that they are arent necessary and
they shouldnt be permitted, but that simply isnt a responsible way
to move forward. These products are needed. Data shows that each
year, Missourians alone initiate almost 2 million Internet searchers
for these types of small-dollar loans. Nationwide, that number surpasses 74 million. Our economy and society are moving toward
doing more and more business online. To facilitate this movement
in customer preference, we need to provide a structure to allow
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00009
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
4
this, as well as safety measures to protect the consumer from unscrupulous practices.
Mr. Baca and I offer today legislation that will closely regulate
and monitor institutions and their products, ensuring full consumer
protection and rigorous oversight by Federal and State entities.
However, without these products, consumers seeking a small loan
will be forced to go to offshore lenders in the black market, leaving
Americans in need with no consumer protections whatsoever. It is
time to allow all Americans access to safe, closely regulated forms
of credit. I thank our witnesses for testifying today, and I look forward to the productive conversation. With that, Madam Chairwoman, I yield back.
Chairwoman CAPITO. The gentleman yields back. Mr. Baca for 3
minutes.
Mr. BACA. Thank you very much for having this hearing. I would
also like to thank the witnesses for being here this morning. I request unanimous consent to insert a letter on H.R. 6139 from The
Hispanic Institute into the record.
Chairwoman CAPITO. Without objection, it is so ordered.
Mr. BACA. Thank you. Just last week, the unemployment rate in
my district rose to 12.6 percent. Combine that with the constant
high unemployment across the country, hard foreclosure rates, and
low economic growth, and you can see why more and more families
are living paycheck to paycheck. As such, we have seen a credit divide grow deeper between the haves and the have-nots. What happens to the single parent who needs to fix their car? Think about
that, those who have to fix their cars. What happens to unemployed families in need who need to pay their mortgages or monthly bills for food, heat, and electricity? How do these people deal
with unexpected high medical bills?
To make matters worse, many of these people have no access to
banks or credit unions to provide them with the credit they need.
Last year I introduced H.R. 1909, which creates a Federal charter for non-bank lenders to provide small-dollar loans to underserved individuals who are in need of credit. And I was pleased to
work with my good friend, Mr. Luetkemeyer, in introducing a new
bill, and I would say we both have come together in trying to come
to a compromise, and a better bill that addresses a lot of the problems, and this is something that has been going on for 3 years.
In working with him, we wanted to create safe, affordable, and
innovative products that can be offered to those who need it. And
those are the important reasons why we came up with this bill.
H.R. 6139 creates a Federal charter under the OCC, and it will
allow the OCC and the CFPB to work together to create again a
safe and affordable credit option for underserved communities. Remember that, underserved communities can create an option. Instead of reinventing the wheel, this bill will work with what we
have. It creates a Federal charter on unincorporated product institutions that are already in the market, increases access for struggling Americans across the country, and allows for experts innovation that is in the marketplace to grow and serve as many people
as possible, and also allow for strong Federal regulatory oversight.
And to those claiming that this is a payday, as my good friend,
Congressman Luetkemeyer said, this is not a payday bill; it should
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00010
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
5
be noted that payday products specifically are banned by chartered
institutions. Over the past few years, there have been many who
have made all kinds of points as to why certain products dont
work, or why they are predatory or why they only make the products work. The fact is problems were easy to talk about and they
dont require responsibility. What we havent discussed is a solution, and this is a solution, a solution that will involve, over time,
recognizing the market, and the industries that are already in
place, and law for Federal regulations in which all parties are involved. That is why I believe H.R. 6139 provides that solution. And
with that, I yield back the balance of my time.
I would like to ask unanimous consent from the subcommittee to
allow Mr. Sessions 4 minutes for the purpose of making an introduction. Without objection, it is so ordered.
Mr. Sessions?
Mr. SESSIONS. Thank you very much, Chairwoman Capito, and
thank you for allowing me to sit in with the subcommittee today,
and I also thank your delightful ranking member and my colleagues on this subcommittee. During my first term in Congress,
in 1997 and 1998, I had the opportunity to sit on this committee.
I sat down front, and enjoyed many long debates and opportunities
to understand the banking system. It has now become the Financial Services Committee, and your leadership, as well as the attention that these Members pay to this, is really very important.
I also am delighted to be with my dear friend, Ed Royce. I have
always sat to his left, and somebody made a mistake today and put
me over here today, and I thank you for that mistake.
Madam Chairwoman, today I am here to introduce a witness who
will appear before the committee. I have the privilege of introducing a very successful Texas businesswoman, a great Texan, and
a constituent of mine, my dear friend, Mary Jackson. Mary is senior vice president of corporate affairs and chief legislative officer for
Cash America, Incorporated. Cash America is headquartered in
Fort Worth, Texas, and provides financial products and services to
consumers across the United States. She is representing her company and the Online Lenders Alliance, known as OLA, an association of U.S.-based online providers of consumer short-term loans. I
have known Mary for over 20 years. She is a strong leader in the
north Texas business community and an advocate for the free enterprise system. Mary is here today to testify about H.R. 6139, the
Consumer Credit Access, Innovation, and Modernization Act of
2012.
My discussions with Mary have convinced me there are really
three truths about this piece of legislation and the need for it.
First, we have a serious credit gap in America, as has been noted
by our speakers earlier today. Americans of modest means do not
have adequate or acceptable access to financial credit products and
services on a day-to-day basis, especially in the event of an emergency.
Second, our Federal policies, both the Federal Reserves efforts to
make credit available and reliance on traditional sources, I believe
have fallen short. The nondepository lenders such as Cash America
and other OLAs could be a responsible and significant provider in
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00011
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
6
this necessary and needed marketplace and could be a part of that
solution.
And finally, under H.R. 6139 the proposed federally-chartered
lenders can and will provide new and innovative products and services, and more importantly, competition in an effort to provide
more and better credit options to so many hard-working Americans
who need to access credit and be able to know that they can help
their families in times of need.
I appreciate you allowing this hearing to take place today, and
I thank the gentlewoman and the ranking member for allowing me
to sit in for a few minutes with this opportunity today to hear
about this bill. Thank you very much. I yield back the balance of
my time.
Mr. Hinojosa for 3 minutes.
Mr. HINOJOSA. Thank you, Chairwoman Capito, and Ranking
Member Maloney. Today, we are discussing whether to give the Office of the Comptroller of the Currency the power to grant Federal
charters to certain non-bank institutions. While I believe that the
stated goal of my colleagues to increase the amount of credit to the
underserved and unbanked populations is noble, and something
that is necessary, I believe that this bill approaches it from the
wrong direction, and I warrant to explain why.
Two years ago this month, we passed the Dodd-Frank Wall
Street Reform and Consumer Protection Act, which set up the Consumer Financial Protection Bureau, or what we call the CFPB. In
its 18 months of existence, the Bureau has made great strides in
writing rules and beginning supervision of the non-bank financial
institutions that have eluded supervision for so long.
I believe that to take these particular non-bank institutions out
of the jurisdiction of the Bureau is premature, and that we should
allow the CFPB to finish completing its rulemaking on non-bank
supervision.
The Office of the Comptroller of the Currency is represented here
today, and according to submitted testimony that I read, they do
not support the policy put forth by this bill, which is significant
considering that they would be the ones in charge of doling out
Federal charters.
I look forward to hearing the testimony today. I hope that it addresses some of my concerns for my district and for my State of
Texas and helps to push the dialogue about how best to serve the
underbanked and unbanked constituents that I represent. I yield
back.
That concludes our opening statements, and I would now like to
introduce the first panel of witnesses.
I will recognize each one of you for purpose of making a 5-minute
statement. Our first witness is Ms. Grovetta Gardineer, Deputy
Comptroller for Compliance Policy, Office of the Comptroller of the
Currency. Welcome.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00012
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
7
STATEMENTS OF GROVETTA GARDINEER, DEPUTY COMPTROLLER FOR COMPLIANCE POLICY, OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC)
Ms. GARDINEER. Thank you. Good morning, Chairwoman Capito,

Ranking Member Maloney, and members of the subcommittee. I
appreciate the opportunity to discuss the Consumer Credit Access,
Innovation, and Modernization Act. Providing responsible financial
services to underserved consumers is an important goal, but this
legislation would harm minority populations, low-income neighborhoods, and communities with concentrations of our military
servicemembers. In addition, it would encourage the development
of businesses with unsafe and unsound concentrations in products
that have serious consumer protection and safety and soundness
concerns.
My testimony provides a summary of our understanding of the
bill, and gets into greater detail about each of these risks. During
my remarks this morning, I will highlight just a few of our concerns. First, H.R. 6139 would adversely affect the consumers that
it intends to help most. This bill would provide special status and
Federal benefits to companies and third-party vendors that would
primarily offer credit products and services that carry greater risks
or cost for consumers who lack access to more traditional bank
products. We anticipate that such companies will request approval
to offer products that include payday loans, tax refund anticipation
loans, and car title loans. Our experience with these products is
that they depend on high fees, repetitive use, high default, and severely weak legal compliance.
Consumer interest groups have voiced similar concerns that
these products trap consumers in a cycle of debt and prevent their
access to safer, more traditional credit and banking services that
could better meet their needs.
We are also concerned that H.R. 6139 would negate many actions
that Congress, the OCC, and other regulators have taken to safeguard consumers from the risks of these types of products.
First, this bill prohibits establishing usury caps where otherwise
appropriate. This prohibition could significantly reduce specific limits established by Congress and many States. For example, it could
eliminate protection for members of Americas Armed Forces. The
cap to annual percentage rate of payday loans, auto title loans or
tax refund loans extended to cover persons at 36 percent.
Second, H.R. 6139 would create a class of federally-chartered institutions with serious safety and soundness concerns. Our supervisory experience suggests that in addition to consumer protection
issues, companies chartered under this bill rely on products that
pose serious compliance BSA/AML and other operational risks.
H.R. 6139 would direct the OCC to encourage joint ventures between credit corporations and third-party vendors to facilitate innovative products and services. Our experience teaches us that dependence on third-party providers to originate or deliver such products and services can create serious compliance risks. Such vendors
often lack the requisite systems and procedures to comply with the
myriad of BSA and AML and other regulations and risk management practices that are essential to the safe and sound conduct of
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00013
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
8
these activities. The Comptroller recently singled out weak thirdparty oversight as a significant contributor to operational risk.
Companies chartered under the bill also face significant BSA/
AML exposure, because of their dependence on products with remote deposit capture characteristics, the lack of long-term customer relationships, and the ability of money launderers to exploit
weaker monitoring and reporting processes.
In addition, companies chartered under the bill faced significant
concentration risk because of their limited business models that
can threaten their viability if underlying market conditions deteriorate. These risks are magnified for firms that lack stable funding
and depend on non-deposit wholesale funding. Because of these
risks, these are products and services that the OCC has largely extinguished from the national banking system. And we would not
support, license or charter an institution concentrating in these
services today.
Finally, the OCC agrees that consistent and uniform standards
provide benefits for both consumers and businesses, but we believe
authority already exists to achieve these goals. The Dodd-Frank
Wall Street Reform and Consumer Protection Act authorized the
Consumer Financial Protection Bureau to adopt standards for financial consumer products and services without regard to whether
they are offered by banks, non-banks, or State- or federally-supervised institutions. The CFPB has general authority to supervise
and regulate non-bank lenders, including payday lenders and large
non-bank participants and consumer credit and services, and will
be conducting examinations of such companies.
In summary, the OCC is concerned that H.R. 6139 could have
unintended and undesirable effects on the population it is intended
to benefit. H.R. 6139 raises serious consumer protection, compliance, and safety and soundness concerns by creating a national
charter for companies concentrating on products most prone to
abuse and that are most often targeted to minority populations,
low-income neighborhoods, and communities with high concentration of our military servicemembers.
Furthermore, where the services are offered, State officials and
the CFPB already have adequate authority to regulate these products and the companies that provide them. The OCC shares the authors goal of providing financial services to underserved communities and unbanked populations and we look forward to working
with the members of the subcommittee to achieve that goal. Thank
you very much.
[The prepared statement of Deputy Comptroller Gardineer can
be found on page 114 of the appendix.]
Our next witness is the Honorable John Munn, director of banking and finance, State of Nebraska, Department of Banking and Finance. Welcome.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00014
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
9
STATEMENT OF THE HONORABLE JOHN MUNN, DIRECTOR,
BANKING AND FINANCE, STATE OF NEBRASKA DEPARTMENT OF BANKING AND FINANCE, ON BEHALF OF THE CONFERENCE OF STATE BANK SUPERVISORS (CSBS)
Mr. MUNN. Good morning, Chairwoman Capito, Ranking Member

Maloney, and distinguished members of the subcommittee. My
name is John Munn, and I serve as the director of the Nebraska
Department of Banking and Finance. It is my pleasure today to
testify to you on behalf of CSBS. State regulators play a central
role in overseeing the nondepository consumer credit industries.
And we appreciate the opportunity to be part of this important discussion.
I applaud the efforts of Representatives Baca and Luetkemeyer
and their colleagues to make financial services and products available for unbanked and underbanked consumers. While we recognize that providing these individuals with access to financial services and products is an important objective, we have significant
concerns about H.R. 1909 and H.R. 6139.
First, we are concerned the bills would establish an option for a
Federal business charter without meeting the necessarily high
thresholds that Congress has traditionally required for receiving
such a benefit. Historically, Congress has created Federal charters
only in highly limited circumstances. In fact, most industries and
businesseslarge and smallin the United States thrive and meet
important consumer needs very successfully without a Federal
charter.
Second, the bills would circumvent our ability to establish and
enforce laws governing the financial services providers. The current
legal structures governing the types of businesses covered by the
two bills have long-standing foundations in State law. The citizens
of each State have determined what financial services companies
and what products are available to them.
In my home State of Nebraska, much of the legal structure
around payday lenders was adopted in the early 1990s. At that
time, our legislature made the decision to take these businesses out
of unregulated back alleys and away from loan sharks and to place
them into regulated storefronts. The result of this action was to
preserve access to these services and products but with more protection for consumers and accountability for the industry.
In 2010, Nebraska had approximately 115 licensed payday lenders, and these companies reported a 20 percent net profit after
taxes.
Finally, the bills would undermine the carefully structured StateFederal balance in financial services regulation. The State law
structures and processes governing financial services providers are
complimented by our Federal partners. These partnerships leverage the benefits and strengths of each side of the relationship.
States serve as the front-line licensing and regulatory authority ensuring that companies wishing to offer such services meet certain
minimum requirements and comply with State and Federal laws.
The Federal component brings a perspective that reinforces without supplanting State authority.
Members of Congress on both sides of the aisle and in both
Chambers have repeatedly voted to keep existing State regulatory
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00015
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
10
regimes. Unfortunately, both bills run contrary to the goal of StateFederal collaboration and will fundamentally undo our existing
partnership. As State regulators, we benefit from our proximity to
the consumer transaction and to the communities served by the financial services providers. We hear firsthand about the regulatory
burdens, and we see up close the consequences of bad actors. These
bills take this perspective out of the picture to the detriment of the
marketplace and of consumers.
The challenge for policymakers is to create a framework that ensures industry professionalism, accountability, and the proper
alignment of incentives while avoiding unnecessary regulatory inefficiencies and burdens. For State regulators, regulatory collaboration and coordination have been vital to striking that balance.
Thank you for the opportunity to appear today. I look forward to
responding to any questions or thoughts the subcommittee may
have.
[The prepared statement of Mr. Munn can be found on page 127
of the appendix.]
Chairwoman CAPITO. Thank you very much.
That concludes the testimony from panel one, and I will begin
my 5 minutes of questioning.
The GAO recently studied depository institutions offering shortterm, low-dollar loanswe all talked about this in our statementsand concluded that these products still are not very widely
available. Given that many States either directly or indirectly have
eliminated payday lending, does your agency intend to encourage
these institutions that you regulate to move into this market and
meet the rising consumer demand for short-term, low-dollar products?
Ms. GARDINEER. Madam Chairwoman, the OCC continues to encourage the institutions that we regulate to meet the credit needs
of low- and moderate-income individuals in this country, and we
agree that more can be done to achieve that. We encourage them
to issue affordable credit, and we oftentimes make sure they understand that they can get favorable CRA recognition by doing so.
However, our concerns with regard to this bill are that in our experience, we have issued guidance because of the concerns and the
problems we have seen with the harm that these types of products
have brought to consumers in the past. So we know we can do
more and more needs to be done and we are certainly willing to
work with the committee, as well as our State partners and other
Federal regulators to achieve those goals.
Chairwoman CAPITO. Mr. Munn, let me ask you, lets use your
State of Nebraska as sort of a sample. What availabilities do you
have in Nebraska that are State-regulated for this type of lending?
Do you have payday lenders?
Mr. MUNN. Yes, we have payday lenders. We license small loan
companies in addition to the 173 banks and 18 credit unions that
we supervise.
Chairwoman CAPITO. Do the institutions that you regulate make
tax refund anticipation loans and those
Mr. MUNN. No, they do not.
Chairwoman CAPITO. So those have been specifically banned
through State statute?
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00016
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
11
Mr. MUNN. Not specifically; I think more because of regulatory
scrutiny of those practices.
Chairwoman CAPITO. As a regulator, what product concerns you
the most in terms of being maybe unfair or difficult for a consumer
in this high-risk, low-dollar area?
Mr. MUNN. I think the burden in payday lending improperly
granted the debt cycle it has created is maybe the most worrisome,
and the cost that leads to for the individual consumers.
Chairwoman CAPITO. The lossmost of those loans are supposed
to be repaid in relatively short periods of time, correct?
Mr. MUNN. Yes, they are. And while we have a law that prohibits
same-day transactions as far as going in paying interest and renewing that transaction, often the gap isnt very far between. Also,
in Nebraska, you can go to different payday licensees for an additional advance having paid off one payday lender.
Chairwoman CAPITO. So you could go to one, and then go to another. You can do that in Nebraska?
Mr. MUNN. Yes, you can.
Chairwoman CAPITO. I would imagineI am from West Virginia,
a small State. We have low socioeconomics in some cases, a lot of
elderly people. I am certain that is the case with everybody here,
but you have heard the statistics, and I am directing to both of you
really, of folks who cant get a $2,000 loan for whatever, tires for
the car or anything, a medical emergency. What optionsare we
going to push everybody to the Internet for Internet lending, is that
something that falls in the bailiwick of this type of regulatory environment? What suggestions can you make to try to solve this problem?
I know, Ms. Gardineer, you said we are encouraging our institutions to do this, but the reality is I am not sure they really are
doing it, and if they are, I am not sure that is maybe in the magnitude to solve an issue here. I think we all acknowledge there is
an issue here.
Mr. Munn, do you want to start?
Mr. MUNN. Absolutely. Being from a rural State as I am, which
I think applies to your State, I think maybe we have better support
systems in place for those situations, oftentimes in the car repair
situation you mentioned, the shop doing the repair would allow the
individual to do it in payments. About 20 percent of our credit
unions in Nebraska, both federally- and State-chartered, have initiated quick cash programs with an 18 percent interest rate which
keeps it within our State usury rate, therefore, they have the ability to structure, they will allow up to 60 days, keeps the APR much
lower than it does when you compute the APR on payday loans.
Chairwoman CAPITO. Did you have something to add, Ms.
Gardineer?
Ms. GARDINEER. Yes, I believe that we all recognize that there
is a problem here and there is a need for enhanced access to credit,
but I think that is part of the issue that we see with the bill. We
have great concerns about increasing consumers access to building
their creditworthiness here. And in many ways, what we see is access to transactions that perhaps provide money, but dont necessarily provide the credit-building relationship that we think is
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00017
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
12
vital to these consumers as they begin to get these small-dollar
loans.
Chairwoman CAPITO. I am going to have to stop you there, because I am going to run out of time, I am sure we will get into the
rest.
Mrs. Maloney for 5 minutes.
Mrs. MALONEY. So Ms. Gardineer, you agree that, or rather the
OCC agrees that there is a credit gap in our country and a serious
lack of credit access for Americans of limited means? I think you
both agree that there is, is that an appropriate assessment?
I would say the OCC and State institutions have a responsibility
to try to help meet these needs. And Mr. Munn, you mentioned the
credit unions efforts with the quick cash deal. What is the OCC
doing to help fill that gap? What would you recommend, if you are
opposed to the bill, how would you recommend that you fill the gap
for the people who do need access to short-term credit?
Ms. GARDINEER. I think what the OCC
Mrs. MALONEY. To build credit scores, as you said.
Ms. GARDINEER. In order to help consumers build their credit relationships, I think what we dont want to see is the unintended
consequences of the harmful effects that could come from some of
these products and services that, in our experience, we have seen
have done more harm than good in helping these consumers meet
those credit needs.
So our concern is not that there is a lack of access to low-dollar
loans. However, we do think that they have to be done in a very
prudent and safe and sound way, and our concerns are not limited
only to the consumer protection issues, but we also see the significant concerns we have with the safety and soundness issues that
come with the offering of these products and services as well.
As I mentioned in my statement, and as reflected in my testimony, there is a significant amount of oversight required with regard to BSA and AML compliance that oftentimes is extremely expensive and could certainly undermine the economic viability that
the bill seeks to have these companies achieve in order to be profitable, but meet credit needs of these individuals.
So again, we want to work with you to look at the innovations
that could be offered, but we are fearful based on our supervisory
experience.
Mrs. MALONEY. You have commented in your statement that you
want to serve underserved communities and unbanked populations,
but I am not hearing and you dont want any abuses, and you want
to protect them, and you want to help them build their credit
scores, and I think that is all great, but how? Where does the
mother whose car broke down and desperately needs $2,000, where
does she go to get a loan that she needs? Would the quick loans
that the credit unions have give a loan as low as $2,000? And what
are the answers, you are saying what you are against, but you are
not saying what you are for. How do we help this unbanked, underserved, really needy population?
Ms. GARDINEER. I think that the goal of the bill is to foster and
encourage the innovative products and services. And we do support
the goal of that bill.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00018
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
13
Mrs. MALONEY. Do you have any ideas for innovative products or
services or how we would serve this population, either of you? I
agree that you want to protect consumers, I am with you 100 percent, and you want to build credit, but you are not saying how you
would do this, how that would happen.
Ms. GARDINEER. I think what the bill structure actually anticipates as far as the OCCs ability to charter and approve these products and services is not toand I think there may be language in
the bill that specifically addresses we are not to create these products, but we are to evaluate them, that would be what would be
asked of the agency. And our concerns, again, Congresswoman,
that we
Mrs. MALONEY. You testified you find them unsafe and unsound,
but I am looking for solutions. Mr. Munn, would the credit unions
give $2,000 loans, or do you have any other solutions that would
be safe and sound?
Mr. MUNN. No, the largest loan in the program in Nebraska is
$500 for a 60-day period.
Mrs. MALONEY. Is that a national program or is that just in your
State?
Mr. MUNN. I believe they developed it on their own.
Mrs. MALONEY. I would say pawnbrokers, too, are a source,
wouldnt you say?
Mr. MUNN. They can be. We do not regulate pawnbrokers in Nebraska. We should give credit to financial institutions we supervise
for tremendous efforts at financial literacy to try and address the
problem hopefully before it develops, as low as elementary school,
and even up through senior citizens events. As far as appropriate
budgeting, savings and also theyre very quick to refer people to financial counselors, if they are unable to assist them with a loan.
Chairwoman CAPITO. Thank you. Mr. Renacci for 5 minutes.
Mr. RENACCI. Thank you, Madam Chairwoman, and I want to
thank the witnesses this morning for being here. Ms. Gardineer,
you indicated in one of your responses that the OCC encourages
low-dollar, short-term loans, correct?
Ms. GARDINEER. Yes.
Mr. RENACCI. And the Center for Financial Services Innovation
conducted a study in 2008 that found as much as 75 percent of the
unbanked and the underbanked population had credit scores that
would be considered subprime or lack enough credit history to generate any score at all. Do the financial institutions that you regulate which offer short-term, low-dollar loans require the borrower
to have above-average credit?
Ms. GARDINEER. I am sure that the institutions that we regulate
require the consumers to have the ability to repay, and to be able
to demonstrate that.
Mr. RENACCI. But if they had below average credit or no credit
score at all, would those banks that you regulate loan money out
to those individuals?
Ms. GARDINEER. I believe I can say we would be concerned with
that type of lending activity.
Mr. RENACCI. You would be concerned with that? So how do
those individuals build a credit score, and at the same time, how
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00019
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
14
are they able to borrow the money that they need for short-term
emergencies?
Ms. GARDINEER. I think one of the things that we need to do is
take a more holistic approach to how we deal with this problem.
And by that, I think we recognize that a lot of these consumers do
have access to these types of products now, and they are clearly
regulated by the States. What I think we would like to see is the
creationwith the creation of the CFPB, there is now a framework
of a Federal agency that can issue very robust guidelines to lending
standards that could be applied on a national scale. And by doing
that, you would ensure that consumers would have the very protections that I think the bill seeks to introduce.
Mr. RENACCI. I have to interrupt you. Your explanation has nothing to do with how the individuals build their credit score; you are
talking about the CFPB and standards. We have individuals that
need dollars today, need to be able to borrow money today, dont
have a credit score, want to go to these organizations, and you have
havent answered how they get that money, or how they are able
to borrow that money.
Ms. GARDINEER. The lending standards of financial institutions
regulated by the OCC would require a demonstration of a borrowers ability to repay, as I said earlier. One of the concerns that
we pointed out with the bill is not only that consumers have access
to cash, but begin to rebuild their credit. We have concerns with
some of the products and services we think we would see from
some of the companies that would be chartered, such as reloadable
prepaid cards.
Mr. RENACCI. I dont mean to interrupt you, but I only have so
much time. How about those people who have the ability to pay but
have low credit scores? I keep getting back to the same thing and
we keep going off in a different direction. There are some who have
no credit score but have the ability to pay, and those who have a
low credit score but have the ability to pay. Does the OCC promote
those type of loans, for small banks to loan out money?
Ms. GARDINEER. We encourage our institutions to make these
types of loans, but there is a regulatory framework within which
prudent loans need to be made. And we do believe that while meeting the needs of these consumers is paramount to the bill, and we
certainly support the goals, they have to be done in a prudent manner and in a safe and sound manner.
Mr. RENACCI. Lets go to the institutions that you regulate in offering short-term, low-dollar loans, can you tell me has that increased or decreased over the last decade?
Ms. GARDINEER. I dont have the data to support that, but I can
get that and get back to you.
Mr. RENACCI. Okay. Mr. Munn, quickly, can you comment on the
importance of being able to share information between regulators
and securing confidential manner?
Mr. MUNN. We are in a new environment, especially with the
CFPB primarily, and the ability to share among financial regulators, both State and Federal, and law enforcement is key, not
only in Bank Secrecy Act and money laundering efforts, but also
just in general as to character issues.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00020
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
15
Mr. RENACCI. I have introduced legislation, H.R. 6125, to ensure
that information can be shared among regulators in a manner that
ensures confidentiality and privilege protection stay in place. Can
you give me your thoughts on that, and do you believe it is necessary?
Mr. MUNN. It is necessary and needed, because there is a wide
array of regulatory bodies out there now, especially from State to
State. And having access to information about, especially bad actors, is key to us being effective regulators.
Mr. RENACCI. Thank you, I yield back.
Chairwoman CAPITO. Thank you. Mr. Baca for 5 minutes.
Mr. BACA. Thank you, Madam Chairwoman. Ms. Gardineer, in
your testimony you raise the objection to a 45-day review period for
the approved product that the OCC would be required to follow
stating that it would be too quick to turn around. For chartered
banks that you currently oversee, what is your typical review process for new credit products and how long does it takehow long
would you propose the review period be for short-term products?
Ms. GARDINEER. I think the 45 days is taken in context with the
language of the bill and the OCCs expectations in reviewing and
approving the products. So the bill requires the OCC to make a determination that the products and services would significantly
harm the interest of underserved consumers, or small businesses,
which we believe would require us to prove a negative, based on
activities that have not yet been conducted. Generally
Mr. BACA. What proof would you be able to do that in determining that, that it would do harm? You said it would do harm.
Ms. GARDINEER. That is the standard that is outlined in the bill,
that the OCC would have to apply in order to disapprove a bill.
Mr. BACA. We dont really know if it would do harm or not.
Ms. GARDINEER. Exactly. So in order to meet that standard in
evaluating the product or services and the only way that the OCC
could disapprove any of the products or services offered by one of
these companies would be to meet that standard, and to meet it
within a 45-day period. I think the bill provides that if the OCC
does not act within that 45 days, the product or service is deemed
to be approved, and at that point cannot only be offered to low-income, underbanked
Mr. BACA. Let me ask an additional question. In your testimony
you infer that under the bill, the lines between the OCCs authority
and the CFPBs authority would be unclear. Doesnt the bill initially leave the CFPB essentially intact with its consumer protection authority under the Frank Dodd? And moreover, can you point
to any part of the bill that would allow the OCC to overturn any
determination made by the CFPB that a product is abusive or
predatory?
Ms. GARDINEER. I think what we looked at is the concerns raised
by the bill in its current form that would require the OCC to create
disclosure for these types of products. The issue that we see and
what I addressed in the bill is the exemption for certain types of
disclosure under the Truth in Lending Act (TILA), which the CFPB
now administers. And if certain disclosure would not be required
for the short-term loans that would be part of the offers presumed
by these companies, then there could be confusion with regard to
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00021
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
16
consumers who would not necessarily benefit from the protections
under TILA for the disclosures of APRs, for example. So those are
some of the concerns that we referenced in our testimony today.
Mr. BACA. You also make the point that we should turn our attention to small-dollar loans authorized by Dodd-Frank which, to
date, has not received $1 of Federal funds or had any funds requested by either the President or Congress. If this program were
funded, the program would only be successful as much as the appropriated funds allow it to be. And I am not sure if you have been
aware of the current political debate of the Federal spending has
not been something that Congress has been able to agree on. Considering all of this, what would be your solution for the growing
credit divide, and why should the CFPB be able to oversee the Federal charter, even though it is not what they were constructed to
do? How does a program that has never been funded allow for
small-dollar loans? And how much Federal funds would it take for
this program to really make some of the progress in todays current
economy?
Ms. GARDINEER. Congressman, I dont know how much money it
would take to make such a program successful. We could certainly
go back and see if there are folks at the OCC who could develop
data and we could get back to you on that. With regard to the
CFPB, what I am suggesting is that the Dodd-Frank Wall Street
Act created the CFPB and gave them the authority to issue broad
standards and guidelines that would cover both banking and nonbanking entities. And in order to maintain a level of consistency
and consumer protection, we believe that robust guidelines that
would be issued by the Bureau would better help to achieve the
goals of the bill.
Mr. BACA. Did my time run out?
Chairwoman CAPITO. Your time has run out.
Mr. BACA. Oh, okay.
Mr. Royce for 5 minutes.
Mr. ROYCE. Yes.
Ms. Gardineer, you mentioned several times in your testimony
that the OCC has some concerns with this legislation in regard to
money laundering and the Bank Secrecy Act. It sounds as if you
are saying that this legislation, which creates a Federal nexus for
some of these institutions, would weaken certain money-laundering
provisions, or you have some concerns with that. I wondered if you
could explain that to me.
Ms. GARDINEER. Of course. Certain of these products and services
would utilize products that we believe would facilitate money laundering. In our experience, one of the things we know is that the
cost of controls, in order to have an effective BSA/AML program in
a financial institution, is extremely costly. Not only that, there is
a myriad of oversight that is required to meet the very complex set
of regulations and rules that have been put into place to protect
against the BSA/AML concerns.
This is pretty much echoed by FinCEN, which recently promulgated rules to address prepaid cards, a product that we believe
would be utilized by many of these companies to offer trans-
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00022
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
17
actional-type services to the underbanked and unbanked that are
targeted in the bill.
Mr. ROYCE. The thing that is concerning, I think, is the presumption that the OCC would not be capable of adequately safeguarding
this sector when it comes to the anti-money laundering provisions,
because what we are talking about here is a system of attempting
to address offshore sites, to address these tribal entities that are
involved in the business. And, again, it would seem to me that with
a Federal nexus here, this would give you the wherewithal to monitor this more effectively.
We currently have a situation where you have offshore companies, you have Indian tribes playing a very large role and an everincreasing role in this sector. So it would seem that, again, giving
a Federal regulator some oversight, that fact would actually increase the safeguards on this front.
Today, FinCEN is forced, if you think it through, to work with
50-plus State regulators, all the State regulators and the District
of Columbia. That cant be an ideal structure for trying to detect
money laundering through the United States.
In a way, you are arguing against the ability of the OCC to do
an effective job on this front, and, of course, we had recently in the
Senate that study about the OCCs failure in this regard. But I
would think that in many ways, this would help give you the tools
to pull that together.
Ms. GARDINEER. I think the issue that we have identified, Congressman, is not one of our oversight, but it is the issue of expanding the market for these products. By providing this specific Federal charter, you would now be allowing products and services that
in our experience, we have identified as not only having safety and
soundness concerns, but consumer protection concerns as well.
Mr. ROYCE. All overseen by the OCC here.
Ms. GARDINEER. And my analogy to what you are talking about
is the issues that we saw growing from the subprime market with
regard to real estate. Subprime products had been around for
many, many years, but generally offered to a very niche group of
individuals. It was the expansion of that product to a broader demographic and across the country that led to a significant downfall
with regard to the real estate crisis that we saw.
So the expansion of the products into the marketplace is where
we ground our concern with regard to the growing AML and BSA
concerns that we have identified.
Mr. ROYCE. Thank you, Madam Chairwoman.
Mr. Hinojosa for 5 minutes.
Mr. HINOJOSA. Thank you.
I thank the distinguished panelists for your testimony. It seems
to me, just like my colleagues who sponsored this legislation, I am
concerned about the availability of credit and the type of financial
products available to our most underserved communities. Hidalgo
County in my congressional district in deep south Texas has a population of nearly 800,000, and it is the most unbanked county, with
over 100,000 low-income households, many of whom are unbanked
or underbanked. I have concerns that stripping the Consumer Financial Protection Bureau of their role to oversee non-bank small
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00023
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
18
lenders will dilute their ability to comprehensively protect the
underbanked and non-banked in my district. Supporters of the new
proposal argue that it does not in any way remove the authority
of the Bureau to examine, to issue regulations, or to enforce rules
regarding these lenders.
So my question to you, Ms. Gardineer is, do you believe that
granting the OCC the authority to issue formal approval of these
consumer products could undermine a later Bureau finding that
the practices are abusive?
Ms. GARDINEER. I think that given the current structure of the
CFPB and its role to evaluate and study consumer products and
services, it is vital under the Dodd-Frank Act that the CFPB have
the ability to issue national standards with regard to the offering
of lending products. This safeguard exists currently today in our
statutory structure.
Mr. HINOJOSA. Are you concerned that the OCC does not have
the resources to provide sufficient oversight of a completely new
class of financial entity such as small-dollar lenders?
Ms. GARDINEER. It is certain risks that we have identified that
we believe with the expansion into the market would do more harm
than good and create
Mr. HINOJOSA. But you dont understand. We only have 800 people in the Bureau. We need 1,200 to be fully staffed. So that is
what my question was about, and I didnt get an answer.
I have a question for Mr. John Munn. Is there a compelling national interest to establish a Federal charter in this area, and what
gaps in regulation do you believe this bill is looking to close?
Mr. MUNN. I see no compelling need for a Federal charter, as
these bills would basically gut State regulation. We feel we are the
feet on the ground.
In regard to the question about the Bank Secrecy Act and any
money laundering, the information that is used in that pursuit
flows up from the institutions we supervise, and the majority of institutions are State-chartered or regulated.
Mr. HINOJOSA. Thank you for clarifying that.
How does Nebraskas licensing scheme and enforcement mechanism differ from what would be in place if this bill were enacted?
Mr. MUNN. We license on a county basis, which gives us a much
smaller area in which to monitor the performance of a payday lender. We have a limit as to the fees that can be charged: $15 per
$100. A licensed payday lender may not hold more than two checks
from an individual at any one time. A check may not be held for
more than 34 days, and the checks in the aggregate cannot exceed
$500.
Mr. HINOJOSA. So how do States differ now in their regulation
of the non-bank lenders? What kinds of protections are in place
that could be preempted if this bill were enacted?
Mr. MUNN. I think those States that have a central registry of
payday-lending transactions where each licensee needs to forward
electronically a notation of an advance to an individual would be
a way in which they can coordinate amongst them so that the use
of payday lending advances is appropriate.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00024
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
19
Mr. HINOJOSA. My final question: Would the bill undermine our
States authority to license and regulate non-bank financial service
providers?
Mr. MUNN. Absolutely.
Mr. HINOJOSA. I yield back.
Chairwoman CAPITO. The gentleman yields back.
Mr. Luetkemeyer?
Mr. LUETKEMEYER. Thank you, Madam Chairwoman.
I would like to follow up for just a second with Mr. Munn.
So far, Mr. Munn, you have been talking about payday lending
and H.R. 1909, and none of that is what we are talking about
today. We are talking about our bill, H.R. 6139, which does not
allow payday lending, number one. Number two, all of the lending
that is in there is beyond 30 days.
So my question to you is, you made the comment a minute ago
that there is no compelling need in your State for small-dollar lending. Is that what you just said?
Mr. MUNN. Yes. No, I am sorry, the question was, is there a compelling need for a Federal charter.
Mr. LUETKEMEYER. A Federal charter, right. But you dont have
anybody whoseyou dont allow lending above $500 for small-dollar loans; is that correct?
Mr. MUNN. As far as payday lending advances, yes. As far as
small loan companies, they may loan to whatever limit they feel is
appropriate.
Mr. LUETKEMEYER. Okay. We have a situation, though, in your
State, you may not be aware of it, but about 900 people a day go
online to find other sources of lending. Does that concern you at
all?
Mr. MUNN. Absolutely. I am concerned about how do they know
that they are working with a valid entity on the other end?
Mr. LUETKEMEYER. Thank you very much. You just made my
point. I think it is very important that we do that as well, and that
is what this bill is trying to do. Because what they are doing is
going offshore. They are going to tribal locations where they are
loaning online. And what this bill tries to do is allow a Federal
charter to take those folks into consideration to allow them access
to that credit so that it can be controlled. And it is not out ofand
it addresses your concerns and makes sure that it is done in a safe
and sound way. Would you agree with that?
Mr. MUNN. How will the individual know, the consumer, when
they go online, that they are interacting with a licensed supervised
payday lender? I did a search
Mr. LUETKEMEYER. Wait. Timeout. We are not doing payday
lending. This is not payday lending.
Mr. MUNN. Is there going to be a prepayment penalty if somebody repays a 30-day advance?
Mr. LUETKEMEYER. No. There is no prepayment penalty. Have
you read the bill? There is no prepayment penalty in this.
Ms. Gardineer, let me talk to you a little bit. Obviously, Mr.
Munn hasnt read the bill, so it is going to be difficult to ask him
any questions about it.
With regard to you, you keep talking about a number of things
here that keep going back and forth, back and forth, with regard
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00025
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
20
to the issues that we are talking about. First, you say traditional
banking is not working. You made the comment that you want to
extinguish small lending from the banking system, yet you want to
work with our banks to make sure that they can provide for the
folks who are in need, who are on the line with their lives and
their livelihoods, who just need a small-dollar loan, yet you have
no solutions. Your solution was a prepaid card.
If I am not mistaken, you have to buy the prepaid card with
money; do you not?
Mr. MUNN. I assume so.
Mr. LUETKEMEYER. How does that solve the problem? Mr. Munn,
I am asking the question of Ms. Gardineer. Thank you.
Ms. GARDINEER. This was just an example of the types of products and services we believe would be utilized in order to provide
the loans that are contemplated under the bill.
Mr. LUETKEMEYER. That prepaid card is not a loan.
Ms. GARDINEER. No, it is not.
Mr. LUETKEMEYER. No, it is not. Thank you very much.
Another question for you. You are talking about a problem building credit history. We had a hearing here not too long ago with regard to the folks who rent to own, and it is very interesting that
during the course of the discussion, many people testified that to
rent to own was a great way to establish their credit history to be
able to go back then and be able to get a normal loan.
You dont believe that people being able to get a short-term loan,
most of whom pay it backin fact, I was the chairman of the Financial Services Committee when I was in Missouri, and we were
working very long and hard on all of these small-dollar lending
folks like this, and we had fewer complaints about them than we
did the banking industry. Why? Because the people come in, they
have a particular need, and they go in and address it, and they
take care of their business. That is the way they establish credit.
I think that is important, dont you?
Ms. GARDINEER. I agree that it is important to establish credit.
Our experience, however, has shown that the types of products and
services that the OCC has reviewed and taken great steps to issue
guidance to protect consumers and enforcement actions to deal
with the high cost of the fees, the rollover and the unsustainable
debt that we believe consumers can be trapped in is of a greater
concern and does not help them build credit.
Mr. LUETKEMEYER. You keep looking at the glass as if it is half
empty. I think it ought to be half full. I look at this as an opportunity to help people if it is structured correctly. You keep telling
me that the OCC cant do this, it cant do that; we are looking for
this, we are looking for that.
We are giving you the authority in this bill to be able to work
with the individuals who want to do this type of lending and create
an environment that will work for not only the lender, but for the
person who is getting the money as well, and works for you to be
able to regulate this. The CFPB is involved in this. This is a collaborative effort on all peoples part to be able to offer a product
that helps everybody in this situation.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00026
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
21
I am really curious, and I have another question in regards to
safety and soundness, but I will leave that for another day. I see
that my time is up.
Thank you, Madam Chairwoman.
Mr. Scott for 5 minutes.
Mr. SCOTT. Thank you, Madam Chairwoman.
Here is what I think is wrong with thisthat is a challenge with
this bill. KPMG did a study, a very, very effective study, that said
that there are 30 million Americans who are either unbanked or
underbanked, and my problem with H.R. 6139 is that you have in
this bill a $5,000 unsecured credit limit and a $25,000 secured
credit limit, both of which the OCC can raise. That is correct; is
it not?
Ms. GARDINEER. Yes.
Mr. SCOTT. All right. Can you explain to me the justification for
such a high required level of credit? And what about those folks
who simply need $2,000 or $3,000 and where the bulk of these 30
million are impacted? How do you justify this high limit?
Ms. GARDINEER. Congressman, these are issues with the bill that
we have identified in our testimony. The bill would actually allow
short-term loans that could be greater than 30 days. They could be
secured. They could be secured by salary payments, if you will.
They could be high cost. They could have rollovers. They could, of
course, increase the cycle of debt, the very thing that we believe is
not the goal of the bill, but could certainly be the unintended consequence of the bill.
Again, what we believe we have seen in our experience is a construct of the bill that would essentially require us to charter companies as national consumer credit corporations againstand have
as a part of those new charters companies against which we already have cease-and-desist orders outstanding for offering the
very types of products that trap consumers into a cycle of debt that
we think is more abusive.
Mr. SCOTT. Could you share with us what potential implications
would result from this requirement, from this high level?
Ms. GARDINEER. I think what we see with regard to the high dollar amount is it doesnt actually achieve the goal that we have
identified with regard to underbanked and unbanked. There is a
range here with regard to the dollar amounts, as you have pointed
out, the $5,000 unsecured, $25,000 secured credit. But in the discussions and the studies that we have read, oftentimes consumers
are seeking much smaller dollar amounts in order to meet their
short-term needs.
Again, our concern is if the goal of the bill is to help consumers
build their creditworthiness, but these unintended consequences
that could sustain a cycle of debt with these types of fees is the result, then we havent actually achieved the goal of helping the consumer.
Mr. SCOTT. So you agree with me that this is a major shortcoming of this bill?
Ms. GARDINEER. I agree.
Mr. SCOTT. Now, let me ask you about this issue of the overlapping between the OCC and the CFPB. What are your concerns
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00027
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
22
there? Isnt there a danger here that when you have this overlapping, when you bring in another agency and you have one in place
that is just getting really under way, and we are still faced with
efforts of trying to disavow that, doesnt that bring out a sense of
uncertainty and unpredictability of who is in charge of what, and
isnt that another basic flaw in this approach?
Ms. GARDINEER. I think what would be created under the bill is
the OCC having the authority to charter national consumer credit
corporations and to then approve or disapprove, given the standard
products and services that are presented to it within a 45-day period. That would seem to be in conflict with the current regulatory
or statutory regime, rather, with the CFPB that has the authority
currently to issue rules and guidelines that would create national
lending standards that apply both to banking and non-banking entities and achieve that level of consistency that consumers need in
order to make informed comparisons about the costs of low-dollar
credit and the availability of that type of credit. The two agencies
together, or the OCC having this authority, doesnt appear to be
needed, given the authority of the CFPB currently.
Mr. SCOTT. Thank you very much.
Mr. Pearce for 5 minutes.
Mr. PEARCE. Thank you, Madam Chairwoman. I would like to
yield a couple of minutes to Mr. Luetkemeyer.
Chairwoman CAPITO. Mr. Luetkemeyer is recognized.
Mr. LUETKEMEYER. Thank you, Mr. Pearce.
I just had a quick question with regards to safety and soundness,
Ms. Gardineer. You made that comment a couple of times. Can you
explain how a small-dollar lender has a safety and soundness problem?
Ms. GARDINEER. I think that the bill actually requires the OCC
to encourage affiliations with third-party vendors, and as I mentioned in our testimony, the Comptroller very recently made a
statement about third-party vendor oversight and the problems
that it raises with operational risks on a safety and soundness
basis.
Mr. LUETKEMEYER. You continue to go down this track, Ms.
Gardineer, of saying, well, we have had this experience, and therefore it is a bad thing. Why dont we change the way we are doing
business then and make it a good thing? You have the rule capability. You have the authority, working with the CFPB, to come up
with new rules, new criteria. If it has to be capitalized differently,
if it takes new management practices, that is fine.
But when you say safety and soundness, I have a real problem
with that comment. As a former regulator, safety and soundness
has a whole different meaning to me. When you impugn that the
integrity of the institution is at risk, you are talking about safety
and soundness. And we are talking about an institution that has
no safety and soundness impact on this society or this whole regimen as a whole. We are looking at one individual institution that
may or may not be in compliance, and you have power over that.
And I keep saying, you keep wanting to not say, well, we cant
do a good job of overseeing it. If you cant do a good job overseeing
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00028
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
23
a small-dollar lender, how in the world can you do a good job overseeing Bank of America and JPMorgan?
Ms. GARDINEER. The issues that I have raised, Congressman,
deal with the third-party vendors who the OCC would be encouraged to have these
Mr. LUETKEMEYER. Maam, with all due respect, if you dont
want them to hook up with those lenders when they apply for their
charter, you dont give it to them. You are in control. You act like
you have no control over this, and yet this bill gives you the authority to do everything you want.
I yield back to my good friend from New Mexico. Thank you.
Mr. PEARCE. Thank you.
Mr. Munn, you talk about wanting to protect the consumer, and
the great fault you find with the payday loans or whatever is just
the charge, right, the amount of the charge; is that it?
Mr. MUNN. The
Mr. PEARCE. So what is your real objection to the payday lending?
Mr. MUNN. I dont object to payday lending as a process. It is the
law of the State, and I enforce State law. So I am neither in favor
of it nor against it.
Mr. PEARCE. So you pass regulations in order to control what? Do
you pass regulations
Mr. MUNN. So that the business is in regulated storefronts.
Mr. PEARCE. So you would control the price of the products; is
that right?
Mr. MUNN. That is correct.
Mr. PEARCE. Okay. And that is basically where you are coming
from Ms. Gardineer; is that right?
Ms. GARDINEER. Yes, sir.
Mr. PEARCE. Now, would you both say that several hundred million dollars is an exorbitant amount to pay for a $140,000 or
$150,000 loan, and the cost was several hundred million dollars?
Wouldnt you say that is exorbitant?
Mr. MUNN. Yes.
Ms. GARDINEER. Yes.
Mr. PEARCE. There was a guy in New Mexico trying to get a
$140,000 loan and couldnt find it. He just had an idea. He was
willing to give up half his company stock for the $140,000. No one
in New Mexico would take it on, so he moved to Seattle, and Bill
Gates ended up paying somebody a lot of money for $140,000. Now,
what you all would do is stop that completely, because that was a
pretty large amount to pay, yet Bill Gates didnt mind. At the end
of the day, he came out okay, I think; wouldnt you say?
Mr. MUNN. Absolutely.
Mr. PEARCE. He survived it.
The question I have at the end of the day is one a constituent
put to me: If I want to borrow $100 today and pay $120 back at
the end of the week, what business is it of yours, the government?
It is a pretty similar question to what Bill Gates would have asked.
What we are going to do is regulate out the potential for this
economy to thrive. We are going to regulate out every opportunity
for anybody who is right now unbanked to find money. We are
going to do that on credit cards. We are going to do it all the way
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00029
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
24
up and down the row. Maybe we should just put out a warning
that says, if you go out beyond here, you are on your own. We are
not going to protect you at all. We dont know what is out there.
You go here at your own risk.
But the idea we could regulate every breath that people take,
every step that they make, every business decision, every crunch
they get into is one that is doomed to fail. A government that intends to regulate everything has no freedom and no movement. We
have plenty of examples of those economies in the word. Now, I
dont want anybody cheated either, but I also want Bill Gates to
find his $140,000 when he comes along.
Thank you.
Chairwoman CAPITO. The gentleman yields back.
I would like to ask for unanimous consent to insert a statement
into the record from Mr. William Isaac. Without objection, it is so
ordered.
Mr. Carney for 5 minutes.
Mr. CARNEY. Thank you, Madam Chairwoman. Thank you and
the ranking member for having this hearing, and for the sponsors
of the legislation and the witnesses today for coming to discuss
what is a difficult issue and a serious problem for so many folks.
We had in here several months back a hearing with, I believe it
was the FDIC, who had a pilot program to address the credit needs
of the unbanked, and I think their target APR was like 38 percent.
The report that they presented to us that day was that it was a
miserable failure. They tried to get their member institutions to
take up that program, and it was quite a failure.
I spoke to Richard Cordray before he was made the head of the
CFPB, when he was the Chief Enforcement Officer, about payday
lending and my concern about consumers and how they were addressed by that. He had field hearings, I understand, after that
and found that there are a lot of people out there in communities
across the country who need access to credit. They are not getting
it from the banking institutions.
So, there is a real need out there. He said he had heard that.
I know that all of my colleagues on both sides of the aisle are hearing that as well. So the question gets to be how do we address that
need? It seems that the banking industry is not doing it, the regular banking industry, if you will.
Mr. Munn, I know you are here on behalf of, I guess, the Conference of State Bank Supervisors. Are you speaking on their behalf?
Mr. MUNN. Yes, I am.
Mr. CARNEY. Was there a process that you all or the organization
went through to develop your position on the legislation that we
are discussing today?
Mr. MUNN. Discussions between regulators, State regulators,
happened both through CSBS and outside of CSBS, and gradually,
I think, we have the benefit of understanding what is working in
other States and what may not be working in other States.
Mr. CARNEY. So it is essentially the issue of preemption, from
your perspective?
Mr. MUNN. Yes.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00030
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
25
Mr. CARNEY. So you are regulating these kinds of lenders right
now. What are the kinds of problems that you see?
Mr. MUNN. The problems that we see, we are very restrictive as
to Internet, access to Internet payday lending. We require that a
license
Mr. CARNEY. By we, do you mean in Nebraska or just generally?
Mr. MUNN. Excuse me, I am speaking in terms of Nebraska, as
far as we require a physical presence within a State for that licensee to offer Internet payday lending so we have some office
where we can go to to review the records.
Mr. CARNEY. Is that typical of other States?
Mr. MUNN. Yes, I believe it is.
Mr. CARNEY. What other kinds of things? In terms ofthe biggest concern are these short-term loans that translate into an APR
that we would otherwise think is excessive, but if you are looking
for that $500 to pay for your new brake job or whatever, you are
going to pay what you need to do.
Mr. MUNN. That is right.
Mr. CARNEY. Isnt that really the essence of the problem? Is that
what you see at the State level?
Mr. MUNN. Each State sets its own caps on it. And, of course,
there are 16 States that either dont allow it or have set the APR
so low that payday lenders cant make money at it.
Mr. CARNEY. Is it the APR, or is it the continuing reupping if you
will, taking an additionalthe cycle of debt, if you will, that has
been described earlier?
Mr. MUNN. I have not read the Pew study that just came out last
week, but in reviewing the major points, I think they used the 5month cycle of debt was common for people who go in for one payday advance.
Mr. CARNEY. Ms. Gardineer, you heard me talk about the need
for this. What is the alternative? Is there a way to cure the legislation that we have before us, or is there a different approach? You
didnt seem to have an answer in response to other Members who
asked a similar question.
Ms. GARDINEER. In looking at the legislation and preparing the
testimony today, we offered our observations on the bill presented
in front of us. The OCC would be willing to work with any of the
Members, the committee, and the other Federal regulators to address the needs of short-term credit, but I dont have today any additional ways that we could do that.
Mr. CARNEY. I think you may have suggested to try to get this
population in the regular banking system. Did you suggest that, or
did I hear
Ms. GARDINEER. No. Actually what I said is that I think the best
oversight that we have in the current structure of the statutes is
the CFPBs ability to issue nationwide standards that would apply
to non-banks as well as banking entities to address the credit
needs.
Mr. CARNEY. Thank you. My time is up. Thanks for coming today
and sharing your expertise with us.
Mr. Grimm for 5 minutes.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00031
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
26
Mr. GRIMM. Thank you, Madam Chairwoman.
Mr. Munn, you just mentioned that you have very robust and
strict rules about online lending in Nebraska. I just had a question.
How do you enforce those rules? And let me give you a specific example. I am in Nebraska. I log on. I go offshore, and they send me
a prepaid card in the mail. How do you enforce that? And they are
breaking the rules of Nebraska, let us just say, in many ways. How
do you enforce that?
Mr. MUNN. Of course, we would not be licensing that offshore
lender. If the consumer complains about it, we would attempt to
get to the bottom of the situation that they have put themselves
in.
Mr. GRIMM. But in all sincerity, you being in Nebraska, you are
not going to do anything about that company in Macau?
Mr. MUNN. We are very limited as to what we can do.
Mr. GRIMM. Okay. So, again, I just want to emphasize, I think
it is a little bit misleading to discuss all of the rules and regulations that you have for the Internet when we all know that these
offshore companies is what we are really trying to avoid in the first
place. You cant really do anything whatsoever to stop them from
doing these loans on the Internet, because unless you plan on monitoring people on the Internet, which we know you certainly are not
going to do, you wouldnt even know about it until after the fact,
until after the damage is done.
So isnt there something to be said about limiting or at least trying to attack the problem of all of this offshore lending that is
going on and get something that is regulated and that we can
maybe do a better job of?
Mr. MUNN. As a State regulator, I dont think we can begin to
try and regulate foreign companies.
Mr. GRIMM. Exactly.
Ms. Gardineer, you mentioned before an analogy with the real
estate market. First of alland also safety and soundness, and I
think it all goes together. Are these institutions, these lenders, are
they depositories? Because I thought they were nondepositories.
Ms. GARDINEER. The entities that the bill would ask the OCC to
charter?
Mr. GRIMM. Yes.
Ms. GARDINEER. That is correct. But they could be owned by depositories.
Mr. GRIMM. Okay. But for the most part, they are not depositories?
Ms. GARDINEER. They are not depositories.
Mr. GRIMM. So if they are not depositories, where is that safety
and soundness issue? Because I have to be honest with you, I dont
see it either. Normally in this committee, safety and soundness
goes to the integrity of the overall banking institution. We are talking about having taxpayers on the hook. If one of these small payday lenders makes loans they shouldnt make, they go out of business. But it certainly isnt systemic, or it is not going to affect the
taxpayers, will it? Can you foresee a situation where it is affecting
the taxpayers if a payday lender or one of these small lenders goes
out of business?
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00032
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
27
Ms. GARDINEER. The form of ownership can change under the
bill. So even though these would be chartered as nondepositories,
I think the bill actually would permit depository institutions, bank
holding companies, savings and loan holding companies to own
these types of companies. And at that point, I think that you do
have the nexus between the depository institutions, the holding
company structure that could create a safety and soundness issue.
Mr. GRIMM. Hold on. But under that bill, the OCC can decide
whether that happens or not, correct?
Ms. GARDINEER. In the framework of the bill.
Mr. GRIMM. So the OCC, based on this framework, could prevent
that.
Okay. Back to the real estate market. Is that really a fair analogy? In this scenario, we have a lender that is lending money pretty much on the hook themselves. Are they then selling that, packaging it and selling it, to the Federal Government?
Ms. GARDINEER. I think
Mr. GRIMM. The risk? Are they or are they not selling the risk
to the Federal Government?
Ms. GARDINEER. I am sorry, Congressman, I dont think I follow
your question.
Mr. GRIMM. The risk of that loan, is it being packaged and sold
to the Federal Government? These lenders, are they going to package and sell it to the Federal Government?
Ms. GARDINEER. No, I dont know thatactually I cant say, because the products and services would have to be approved by the
OCC. So the construct of how those services would be offered
Mr. GRIMM. Okay. I can assure you that they are not being packaged and sold likethat is silliness. Okay? This is a serious proceeding. The subprime loans were sold to Fannie Mae and Freddie
Mac, sold to the government, which put taxpayers at massive risk.
The banks were knee deep in this stuff, and it was a systemic problem that hurt our overall economy. And real estate in my State is
25 percent of our State economy. This amount of lending isnt even
in that regime, and I just think that analogy is simply absurd.
Ms. GARDINEER. Actually, I think the analogy has some merit,
because what we are talking about with regard to all aspects of
lending are the disclosures that consumers need in order to make
informed choices. And what we saw with the subprime market was
the expansion of that product to a broader demographic without
the disclosures with regard to how the products were offered and
the mechanics of that type of loan.
Mr. GRIMM. I know my time is up, but the problem wasnt with
disclosures; it was that the Federal Government was buying it all,
so no one cared.
Thank you. I yield back.
Chairwoman CAPITO. Mr. Green for 5 minutes.
Mr. GREEN. Thank you, Madam Chairwoman, and I especially
thank you for allowing me to continue to interlope, given that I am
not a part of the committee. And I thank the witnesses for appearing. Let me start with Mr. Munn.
Mr. Munn, you were asked a question earlier, and you didnt get
a chance to respond in terms of your knowledge of the bill. Would
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00033
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
28
you like to respond before I go to some other areas in terms of your
knowledge of the bill?
Mr. MUNN. Thank you.
The point has been made more than once that in the bill as proposed, the lenders would not make a loan of less than 30 days. And
my question was, well, I dont see any prepayment penalty called
for, so somebody may go to one of these lenders. They only need
the money for 7 days, but they are made a 30-day loan with the
30-day fee, and pay it off in 7 days. From an APR standpoint, that
increases the APR substantially.
Mr. GREEN. And does that, in your mind, constitute a penalty?
Mr. MUNN. A penalty? It would quadruple the annual percentage
rate, and, of course, that is what we are used to. The terms we
think of in terms on payday lending is the annual percentage rate
so that the consumer can shop from one payday lender to the next.
Mr. GREEN. How many hats are you wearing today? I know what
your current title is, but in your testimony you seem to indicate
that you are representing some other entities.
Mr. MUNN. I represent the State of Nebraska as the director of
its Department of Banking and Finance and serve at the pleasure
of the Governor, but then I also appear on behalf of the Conference
of State Bank Supervisors in which I am actively involved. I also
represent all State financial regulators on the Federal Financial Institutions Examination Council, an entity created by Congress in
1979.
Mr. GREEN. When you are speaking, how do I know when you
are representing Nebraska or the other entities? Where is the line
of demarcation? Is there a bright line for me?
Mr. MUNN. There probably isnt a bright line. I would think
today, probably 60 to 70 percent of my testimony was Nebraskabased.
Mr. GREEN. Let us ask a few questions now about your opinion
as it relates to the other entities. Has there been a request by
these other entities to regulate in this area? Are you aware of a request that is being made by entities, Governors, for example? I
know you are not representing Governors, but are Governors asking for this kind of regulation?
Mr. MUNN. No, I am not. It is the powers granted to the Consumer Financial Protection Bureau by Congress is where the new
source of regulation is coming from.
Mr. GREEN. And as it relates to preemption, your State would oppose preemption, I take it?
Mr. MUNN. Yes, we would.
Mr. GREEN. Do you have any sense of how the other States
would weigh in on the question of preemption?
Mr. MUNN. I think the States would come down consistently on
my side, especially when 16 of the States either dont allow payday
lending or have set a usury rate such that it is not economically
feasible for the lenders.
Mr. GREEN. And for the benefit of people who may not follow
these issues closely, but may be following this hearing today, explain what preemption means so that people will understand.
Mr. MUNN. Okay. Preemption means that the Federal law in a
certain situation is given supremacy over the laws of the State, and
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00034
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
29
the State has nothing to say about howwhatever the object of the
preemption was, the State regulation is cast aside.
Mr. GREEN. Generally speaking, who usually favors preemption?
I hate to get you into a political quagmire, but who usually favors
preemption?
Mr. MUNN. Generally, companies that want to do business in
more than one State. However, I am more familiar on the banking
side. We have banks we supervise which operate in several States
very effectively because State regulators work together from a
home State-host State basis.
Mr. GREEN. Let us talk about persons who are States rights advocates. Do they usually favor preemption, persons who are States
rights advocates?
Mr. MUNN. Not to my knowledge.
Mr. GREEN. Let us talk about what your knowledge base reveals.
What does it reveal as it relates to preemption? Persons who are
States rights advocates, would they normally favor this kind of
thing?
Mr. MUNN. The subject of the bill?
Mr. GREEN. No, not the subject, but having the Federal Government decide what States should do, or taking the authority from
States.
Mr. MUNN. No, I would think they would naturally be opposed
to that.
Mr. GREEN. And my final question will be this: If this is passed,
will Nebraska have the opportunity to continue to regulate, in your
opinion, payday lenders, as opposed to what is being now established? There is a new name being given to institutions that will
engage in this conduct. Are you of the opinion that you will be able
to continue to regulate payday lenders and other lenders?
Mr. MUNN. I dont believe that we would. I think that the current
payday licensees that we have would probably either be forced out
of business or would seek a Federal charter.
Mr. GREEN. So you would be preempted.
Thank you, Madam Chairwoman.
That concludes our first panel. I thank both of our witnesses. We
will assemble the second panel and begin in a few minutes.
I would also like to ask unanimous consent to insert a statement
into the record from Americans for Financial Reform. Without objection, it is so ordered.
Chairwoman CAPITO. We will have a quick changeover.
[brief recess].
Chairwoman CAPITO. All right. We will reconvene, if I can get
order in the room.
I want to recognize each of our witnesses. First of all, I want to
thank them for coming, and I want to recognize each one for 5 minutes for the purpose of making a statement.
Our first witness is Ms. Mary Jackson, who was introduced by
her good friend Pete Sessions, a Member of Congress. She is the
senior vice president, corporate affairs, of Cash America International, Incorporated. Welcome.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00035
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
30
I would remind the witnesses that you are really going to need
to pull the microphones close, and make sure they are on so, that
we can properly hear your statements. Thank you.
STATEMENT OF MARY JACKSON, SENIOR VICE PRESIDENT,
CORPORATE AFFAIRS, CASH AMERICA INTERNATIONAL
Ms. JACKSON. Thank you, Chairwoman Capito, and members of

the subcommittee.
I am here to advocate today for consumers. The National Bureau
of Economic Research released their study citing that about half of
all Americans couldnt come up with $2,000 in 30 days to meet an
emergency. I am sure this is something you are already keenly
aware of because the study is referring to your constituents.
I have been an employee of Cash America for over 20 years and
have watched our businesses grow as community banks have left
the neighborhoods, and I have seen the improvement in the nonbank lending space, and it is exciting to see the progress of products and better customer service that has evolved. But as with any
business, there is still room for improvement.
We have witnessed the explosion of Internet lending. We believe
the current State laws do not adequately protect consumers, forcing
them to opt for loans that do not have high-quality standards or
enough consumer protections. But foremost, we listen to our customers who have consistently told us they need more choices.
Cash America is an innovative, 28-year-old financial services
company with over 7,000 employees. We operate with 4,100 licenses in 31 States and adhere to 12 Federal lending laws, most
notably anti-money laundering, truth in lending, and fair credit reporting. We are a customer service company that hears from our
customerssuch as Regina in Atlantawho say more options
would be a great idea that would help a lot of families in need.
Consumer behavior is changing rapidly with advances in technology, and according to research, global Internet usage increased
75 percent in the last 5 years and is expected to increase another
40 percent in the next 3 years. Research also shows that 59 percent
of the U.S. population banked online in 2010. At Cash America our
online lending subsidiary, E-Nova International, conducted about 4
million transactions last year and extended around $2 billion in
credit.
A Federal non-bank charter, as outlined in H.R. 6139, would take
the industry from struggling with 50 different State models to one
overriding solution that meets consumer needs. The State-by-State
model is utterly ineffective. We cant offer the same choices to consumers with identical financial needs because they are separated
by nothing more than a State line. And in most States, the spectrums of offerings is limited by outdated laws that restrict the
number of choices available to consumers.
For instance, in California, if someone needs $1,000, they would
have to borrow from 4 different payday lenders at $250 each, or
qualify for a loan over $2,500 and pay back $1,500 immediately to
get the $1,000 they seek.
Also, States like Nebraska have not modernized and will not license Internet lenders. Currently, lenders are required to develop
new products dependent on antiquated State consumer credit stat-
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00036
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
31
utes that were not drafted for current technologies or online interstate consumer lending. And if we were to apply the same Stateregulated scenario to credit cards, most Americans living in States
like New York and Texas would not be able to carry a credit card
due to their State laws.
More than 60 million Americans are in need of non-bank financial products. We envision under the charter working alongside
banks, credit unions, nondepository lenders, and others who desire
to provide credit options for consumers. Even the CFPB has stated
that achieving solutions at scale requires that we actively engage
in all sectors.
What innovative production do consumers need and want? Consumers need amounts from $500 to $5,000, with longer terms of 3
months to 2 years, and we are committed to providing these under
the charter. Moreover, we care about our customers, and despite
recent articles to the contrary, we have no desire to circumvent the
CFPBs efforts, and the bill specifically states so.
We have Federal banks and State banks. We have Federal credit
unions and State credit unions. We need a Federal non-bank charter and State licensed lenders. The debate over consumer lending
continues to be volatile, but most ironically, everyone here wants
the same thing: more quality financial choices in the marketplace
for hard-working Americans.
Cash America was built on the foundation of serving people that
traditional financial institutions have overlooked. We encourage
you to support H.R. 6139. Lets modernize our thinking and our
laws so we can truly meet the needs of those who have the fewest
options.
Thank you, Chairwoman Capito, Ranking Member Maloney, and
subcommittee members. It has been a pleasure to share our
thoughts with you today. Thank you.
[The prepared statement of Ms. Jackson can be found on page
125 of the appendix.]
Our next witness is Ms. Frances C. Bishop, the owner of Dollar
Pawn, Incorporated, on behalf of the National Pawnbrokers Association. Welcome.
STATEMENT OF FRANCES C. BISHOP, OWNER, DOLLAR PAWN,
INC., ON BEHALF OF THE NATIONAL PAWNBROKERS ASSOCIATION AND THE ALABAMA PAWNBROKERS ASSOCIATION
Ms. BISHOP. Thank you.

Good morning, Chairwoman Capito, Ranking Member Maloney,
and members of the subcommittee. My name is Fran Bishop, and
my husband and I have owned and operated Dollar Pawn in
Haleyville, Alabama, for 24 years. I have also been an active member of the National Pawnbrokers Association and the Alabama
Pawnbrokers Association, having served as president of both organizations as well as chairing their government relations committees.
As the old Whats My Line game show began with enter and
sign in, I am a wife, a mother, a grandmother, a pawnbroker, and
a small business owner. Today, I am here to express the concerns
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00037
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
32
of the National Pawnbrokers Association, which is comprised of
independent, family-owned pawn stores all across the country.
By point of clarification, none of the large publicly traded pawn
companies are members of our association. Our small business
members serve over 30 million consumers short-term cash needs
through face-to-face, nonrecourse pawn transactions. The NPA only
represents pawnbrokers and no other nondepository industry.
With the greatest respect to the Members sponsoring H.R. 1909
and H.R. 6139, these bills provide or even expand access for providers, but are not likely to afford more access for consumers. Specifically, this bill is anti-small family-owned business and favors
large megaproviders. It is Wall Street versus Main Street once
again. Its anticompetitive nature is likely to result in fewer providers rather than more. Fewer providers commonly results in
higher prices.
These bills preempt States regulatory, supervisory, licensing or
examination powers already in place by State legislatures, or in
some cases, a vote of the people. Consumers credit needs are being
met in our members communities by State-licensed, nondepository
providers as well as local community banks and credit unions. The
sky is not falling.
Another Federal bureaucracy to charter Federal nondepository
providers is unnecessary. The permanently broad powers a Federal
charter holder would receive will at best be scantly regulated by
only one agency, the OCC, which already has its plate full supervising, examining, and enforcing laws regarding national banks
and federally-chartered thrifts.
A Federal charter holder would be able to bypass all of the State
requirements I mentioned previously, as well as TILA, annual percentage rate disclosure, CFPB examination, supervision, enforcement, et cetera; but our members, small businesses, will remain
subject to all of the above and more that time does not permit me
to cover here.
Pawnbrokers are the Nations safety net lenders, regulated by
the States for decades. Regulators rarely receive complaints about
pawn transactions. We serve our communities and our customers
well. I urge you to not create an unlevel playing field for our small
businesses by giving megaproviders access to expanded and largely
unregulated markets under the guise of access to consumers and
small business.
Thank you, Madam Chairwoman, and members of the subcommittee.
[The prepared statement of Ms. Bishop can be found on page 65
of the appendix.]
Our next witness is Mr. John Berlau, senior fellow, finance and
access to capital, the Competitive Enterprise Institute. Welcome.
STATEMENT OF JOHN BERLAU, SENIOR FELLOW, FINANCE
AND ACCESS TO CAPITAL, THE COMPETITIVE ENTERPRISE
INSTITUTE (CEI)
Mr. BERLAU. Thank you, Madam Chairwoman, Ranking Member

Maloney, and honorable members of the subcommittee. Thank you
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00038
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
33
for this opportunity to present testimony on behalf of my organization, the Competitive Enterprise Institute.
This story also shines light on one of the most untold stories on
the workings of Congress, and that story is that sometimes Members of Congress actually are working together and finding common
ground on legislation, legislation that would pare down excessive
regulations that block stable and transparent sources of credit and
capital for both consumers and entrepreneurs.
My organization, the Competitive Enterprise Institute, is a
Washington-based free-market think tank that, since its founding
in 1984, has studied the effects of all types of regulations on job
growth and economic well-being. My title at CEI is senior fellow for
finance and access to capital, and to increase access to credit and
capital, CEI proposes a public policy strategy that can best be described with a phrase sometimes associated with energy exploration, all of the above.
Banks, credit unions, and non-bank lenders all have a role to
play in expanding credit for responsible consumers and entrepreneurs, and all should be able to operate free of excessive regulation. That is why we supported the regulatory relief in the recently
enacted and bipartisan Jumpstart Our Business Startups Act for
community banks to allow them to more easily raise capital and
seek investors, it is why we support bipartisan legislation allowing
credit unions to make more business loans, and it is why we support the subject of this hearing, H.R. 6139, giving non-bank lenders
the same opportunity to offer financial services through a national
charter similar to the system that banks have had for 150 years.
Now, my organization, the Competitive Enterprise Institute, has
actually long supported optional Federal chartering as part of our
goal of what we call competitive federalism. As our Chairman Michael Greve has written, real federalism aims to provide citizens
with choices among different sovereigns and regulatory regimes.
And all this bill would basically do is for the unsubsidized nonbank lenders who arent taking deposit insurance, arent a risk to
the taxpayers, to create a similar system of optional Federal chartering that has existed for banks for almost 150 years at the very
same agency, the Office of the Comptroller of the Currency.
It was in the Civil War that the National Bank Act was enacted,
and many banks have chosen to stay with State regulators. But
competition from federally-chartered banks has lowered the cost of
credit and capital for everyone, and I think a similar reduction in
the cost of credit and increase in access to credit could occur under
a system of optional Federal chartering for non-bank lenders to
work to the benefit of both consumers and entrepreneurs.
I want to point out that research on entrepreneurship from the
Kauffman Foundation and other respected sources, as well as some
prominent specific examples, shows there is much less of a gulf between personal credit and business credit than some policymakers
may believe. Sergey Brin, for instance, started what is now Google,
Incorporated, as a college student, using a personal credit card.
Spike Lee financed some of his first films by maxing out his credit
cards. And the Kauffman Foundation has found that nearly half of
entrepreneurs use personal credit cards, and there is also evidence
that entrepreneurs utilize non-bank lenders more typically associ-
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00039
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
34
ated with consumer borrowing. Former Federal Reserve Senior
Economist Thomas Durkin has written thatand has found that
small independent businesses, seasonal businesses such as landscaping, plumbing, and handyman services, may use auto title
loans as a source of short-term working capital.
H.R. 6139 would broaden these options and lift barriers to loan
innovations such as short-term loans, and would have longer-duration installment loans specifically suited to small entrepreneurs
and to many consumers.
Thank you so much again for inviting me to testify, and I look
forward to answering your questions.
[The prepared statement of Mr. Berlau can be found on page 58
of the appendix.]
Mr. Kenneth W. Edwards, vice president, Federal affairs, the
Center for Responsible Lending. Welcome.
STATEMENT OF KENNETH W. EDWARDS, VICE PRESIDENT,
FEDERAL AFFAIRS, THE CENTER FOR RESPONSIBLE LENDING (CRL)
Mr. EDWARDS. Thank you. Chairwoman Capito, Ranking Member

Maloney, and members of the subcommittee, thank you for inviting
me to testify on better understanding of the regulatory regime for
nondepository creditors and my views on H.R. 6139.
I currently serve as vice president of Federal affairs at the Center for Responsible Lending, a nonprofit, nonpartisan research policy organization dedicated to promoting and protecting homeownership and family wealth by eliminating abusive financial products.
In my testimony today, I would like to emphasize the following
three points: Point number one, H.R. 6139 would circumvent the
CFPBs carefully contemplated supervisory, enforcement, and rulemaking authority over certain nondepository financial institutions.
The CFPB is the primary Federal regulator with explicit authority
over large nondepository institutions and certain nondepository entities, including payday lenders. Title X of Dodd-Frank tasks the
Bureau with consumer protection through rulewriting supervision
and enforcement to ensure that markets allow borrowers to gain
access to and choice among financial products and services that are
fair, transparent, and competitive.
In just 1 year, the CFPB has begun to create sensible rules of
the road for financial markets through a balanced and level regulatory playing field for market participants. Without such evenhandedness, consumers would be exposed to a financial marketplace rife with the very kinds of abuses that led to the financial
crisis. The CFPB supervisory purview over nondepository entities
is prudently designed to improve the quality of financial services
in this sector and enforce Federal consumer financial law.
Point number two, H.R. 6139 would expressly allow nondepositories to evade 230 years worth of State consumer protection laws,
licensing, and supervision that are essential to protecting vulnerable consumers from abusive financial practices.
Under H.R. 6139, nondepository charter holders would be able to
offer financial product terms that some States have either expressly prohibited or heavily regulated; for instance, high-cost pay-
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00040
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
35
day loans. Marketed as short-term relief for a cash crunch, payday
loans typically carry annual interest rates of around 400 percent
and create long-term debt traps for working people. The loan structures ensure that the vast majority of borrowers cannot pay off the
loans when due without leaving large gaps in their budgets. As a
result, borrowers are forced to take out new loans after paying the
first one back.
States are the traditional regulator for most small-loan products,
including payday loans. In fact, State limitations on interest rates
have existed for over 200 years. However, since the mid-1990s, payday lenders affirmatively sought and were often granted special authority to charge over 300 percent APR on their loans. Since 2005,
a countertrend developed, and no new State agency has granted
payday lenders or other short-term lenders their needed exemption
from traditional small-loan laws and other regulations.
Despite the harmful impacts of payday lending and the States
efforts to rein in the financial abuses associated with this form of
small-dollar credit, H.R. 6139 would permit credit companies to circumvent State laws and would prohibit the Federal financial consumer watchdog, the CFPB, from acting to protect borrowers from
harmful products.
Point number three, H.R. 6139 would roll back important Federal credit protections for consumers. Since 1969, the Truth in
Lending Act has required creditors to disclose finance charges and
APRs before consumers sign a loan as a baseline cost-credit comparison measure.
Payday loans, for instance, are also subject to TILAs credit disclosure requirement, and as a result, consumers are afforded an accurate way to gauge the true costs of lending across products. H.R.
6139 upsets this long-standing Federal consumer protection by exempting credit companies from this APR disclosure. This would result, of course, in a significant marketwide rollback of Federal credit law.
In conclusion, we believe that this legislation would directly
harm vulnerable borrowers, particularly the underserved, and
should be opposed.
Thank you again for the opportunity to testify, and I look forward to answering any of your questions.
[The prepared statement of Mr. Edwards can be found on page
74 of the appendix.]
Chairwoman CAPITO. Thank you very much.
And our final witness is Mr. G. Michael Flores, chief executive
officer, Bretton Woods, Inc. Welcome.
STATEMENT OF G. MICHAEL FLORES, CHIEF EXECUTIVE
OFFICER, BRETTON WOODS, INC.
Mr. FLORES. Good afternoon, and thank you very much, Chairwoman Capito, Ranking Member Maloney, and members of the
subcommittee for the opportunity to testify today on a topic of
growing concern to many in this room, and one that I have followed
for several years. My firm provides management advisory and research services to banks, credit unions and alternative financial
services providers. With more than 30 years experience, I have
witnessed the evolution of the financial services marketplace. In
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00041
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
36
2008, this country woke to the worst economic crisis since the
Great Depression. I belive we have now reached a decision point
on how to deal with the credit needs of the 60-plus million Americans marginalized by the traditional banking model.
Based on my most recent study, Serving Consumers Needs for
Loans in the 21st Century, I would argue that consumers, notably
those in the low- to moderate-income range, would stand to benefit
from a new financial paradigm that recognizes the potential of alternative financial services providers. Many, but certainly not all
of these consumers are part of the 60 million Americans who are
either unbanked or underbanked. In addition, there is a growing
class of moderate to middle-income consumers who have chosen to
leave traditional banking because of increased fees or because they
need an unsecure personal loan, a product no longer offered by
most traditional banks.
Access to credit has been an ongoing problem that has worsened
with the times. Difficulties of underbanked and unbanked consumers to obtain smaller dollar loans has been the subject of increasing debate, including in a number of Congressional hearings.
But it is not just about low- to moderate-income consumers, because the fact is that bank customers, many of what you and I consider healthy bank accounts, are coming up short as well.
Since the 1980s, banks have used credit card lines, home equity
lines, and overdrafts to provide consumer credit. These are now
less viable due to the poor economy and increased regulations.
Overall, the community banks focus on consumer lending has declined significantly since 1985 according to the FDIC. And during
that period, unsecured installment loans have all but disappeared
from bank product suites, due to profitability, risk, and regulatory
concerns.
Today, loans under $5,000 are all but non-existent, and with
good reason. Given the legacy cost structure and slowed option of
new technology, many banks arent capable of properly making
loans under $5,000. New Federal regulations and increased compliance costs are causing banks to examine their customer base. As
my study details, the traditional banking business model relies on
scale to be profitable. According to JPMorgan Chase, about 70 percent of customers with less than $100,000 in deposits and investments will be unprofitable.
Given the level of investment required to succeed in the 21st
Century, it is only rational that banks target their most profitable
customer segments. The potential fallout is significant and will
likely add to a further retraction in the credit market. Limiting
consumer and small business credit also has a detrimental effect
on local economies.
Consumer financial services are clearly at a crossroads and I believe that a new financial regulatory structure is warranted. The
answer points to the capabilities of alterative financial services providers; many have invested in more efficient and cost-effective technology, but costs associated with regulatory variations in 50 States
inhibit their ability to offer a range of standard products, particularly in the $750 to $5,000 range. Differing State regulations deny
alternative financial services providers the ability to achieve scale,
reduce cost, and thereby pass on the savings to the consumer.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00042
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
37
Studies of the impacted restricted regulations and other industries, most particularly the lack of Federal preemption, repeatedly
shows that these very State regulations limit options and increase
costs to consumers. There is room for both Federal- and State-approved lenders, as it is a model for State and national chartered
banks.
I would further argue that the lack of standard product nationally, in and of itself, creates disparate impact on consumers. That
is, nothing more than a State line can cause consumers to meet
their specific credit needs with less than optimal and more expensive alternatives. I believe this bill will move us from the status
quo, and we need to move from the status quo, we have been talking about it, identifying the problem, but we have yet to act upon
any solutions. I think this bill will help bring relief to millions of
American consumers. Thank you for your time, and I would be
happy to answer any questions. I would like to submit my study
for the record.
[The prepared statement of Mr. Flores can be found on page 80
of the appendix.]
Chairwoman CAPITO. Thank you all very much. I would like to
begin the questioning. Ms. Jackson, just a point of clarification
here on this bill. You mentioned several States, I believe mine is
one of them that does not do, or at least it does not permit payday
lending. It was a Federal floor here that such is proposed with a
bill, would that statute be preempted by this? So it could go forward in all 50 States?
Ms. JACKSON. The premise of the bill is basically to allow longerterm installment type loans in the marketplace. So States like
West Virginia that have a usury cap where citizens are going online and getting either payday loans or a form of installment loans,
yes, we would, as a federally-chartered enterprise, be able to compete with the offshore lenders to deliver products that do have consumer protections, that do have oversight and give consumers a
choice.
Chairwoman CAPITO. So, that is a yes. Then, would the State legislature, in your opinion, be able to come in and override that federally-chartered provision? I would suppose, no.
Ms. JACKSON. I believe with the way credit cards are treated in
this country and other banking products, that we could be working
with State regulators on some of those solutions. There are some
exceptions. The Credit Card Act and the way credit cards are processed in certain States, but it doesnt prohibit the basic tenets of
a credit card to be available to consumers in those States.
Mr. BERLAU. Congressman, if I may, it would onlythe entities
would only get the exemption if they applied and met the standards of the Office of Comptroller of the Currency prescribed under
the bill, similar to the system of State and national banks where
a bank can choose to be regulated by the Federal or by the State
government.
Chairwoman CAPITO. Right, so the OCC wouldthat determination would then allow people to override the prerogative of the
State legislature.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00043
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
38
Mr. BERLAU. But if it chooses not to, or the OCC decides it does
not meet their standards, then yes, all the West Virginia rules
would still apply.
Chairwoman CAPITO. Ms. Bishop, you mentioned and launched
concerns in your testimony that this would disproportionately favor
large entities, and you mention that yours was not one of those. So
in your State, what is the situation now? Who are you competing
against? Are your customers the same? And has your customer
base changed over the last 3 or 4 years? Who are you competing
with as your customers changed, and who are you competing
against?
Ms. BISHOP. Speaking to the pawn industry, which is what my
business is and the association I represent, I continue to compete
with other pawnbrokers down the street, or in the next town or
what have you. We alsopayday lending is allowed in Alabama, it
is regulated also by the same State banking department which also
regulates the pawnbrokers, small loans, mortgage brokers and so
forth. So that
Chairwoman CAPITO. Do you feel likenot to interrupt, but I
have a littledo you feel like you are serving the same customers?
Ms. BISHOP. No.
Chairwoman CAPITO. And then on the other one, has your customer base changed over the last 4 years with the downturn of the
economy, is it broader or has it basically stayed steady?
Ms. BISHOP. It has broadened somewhat, not only just with the
downturn in the economy, but other economic situations with, for
instance, the price of gold, which is higher than it has been in
probably who can remember when. That has brought an additional
segment of customers in who can use that asset as collateral for
their tangible personal property loan.
Chairwoman CAPITO. Mr. Flores, a consumer who does not have
enough money in their checking account, or even if they dont have
a checking account, they have an option, or in their checking account, they could bounce a check, use overdraft protection, get a
payday loan, pay the bill late or borrow from another institution.
Why would consumers pick one of theseI am going to postulate
the reason they pick one over the other is it is the one they can
get and they can get to, and sort of get them over the hump until
they can solve whatever problem, the electric bill or whatever. Do
you have an opinion on which one of these, because they all come
at a relatively high price, or gaining momentum or losing momentum or why a consumer would choose one of these over another?
Mr. FLORES. There is a continuum of need, and I break it down
in my report, unanticipated needs for short-term dollar amounts,
and overdraft coverage, which is much less expensive than bouncing a check with associated fees and late charges, et cetera. A payday loan is less expensive than an overdraft, if you look at what
the average overdraft amount is and overdraft fee, the installment
loan meets that longer-term need for a higher ticket item, that
$2,000 to $3,000 that we are talking about that really is not available out there and hasnt been since the old finance companies of
the 1970s or 1980s.
Chairwoman CAPITO. I bought my refrigerator with one of those,
30 years ago.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00044
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
39
Mr. FLORES. So I think we need to give the consumer a lot more
credit than we do. Their need to manage their finances down to the
last penny, they know how to do that and they look for the best
options available to them. So the more options we can give them,
ultimately the less cost they will incur to meet these needs.
Chairwoman CAPITO. Thank you. Mrs. Maloney?
Mrs. MALONEY. Thank you. I think we all agree that there is a
need for small loans. And the supporters of the bill argue that they
are not there, so therefore they are going on the Internet, they are
going offshore, they are getting these loans that are more predatory
with higher interest rates. And I would like to ask the panelists if
they have any research, or Mr. Flores, if your report touched on
this area, or Mr. Edwards, or Mr. Berlau, and your comments, Ms.
Bishop, if you could tell me how widespread pawnshops are, are
they in every single community, all across rural, every State, whatever? But my primary question right now is the question on the
statements by some earlier that people are going on the Internet
to get loans in order to get this refrigerator, or get that car fixed,
or whatever it might be. And Ms. Jackson, if any of you or all of
you would comment on whether that is widespread or whatever.
I am going to start with Mr. Flores and just go down the panel.
And if you would like to comment on what your research is or your
understanding of the use of the Internet to address these needs?
Mr. FLORES. I did a research report on overdrafts a few years ago
comparing other short-term alternatives. The demand was upwards
of $100 billion a year for this money, and the demand is not going
away even though some States had legislated products away from
it.
Mrs. MALONEY. Are they going on the Internet to get this loan?
Mr. FLORES. Absolutely. They are looking at whatever option is
available, and the Internet is a growing option. It is very convenient, they dont have to go search for a storefront. And I think a
key point to remember is that this market is growing, that the
Washington Credit Union League estimates a 2.8 million a year increase in their unbanked and underbanked communities.
Chairwoman CAPITO. Thank you. Mr. Edwards?
Mr. EDWARDS. Thank you, Chairwoman Capito. If I could just respond to the previous comment of Mr. Flores, payday loans and
overdraft fees are not interchangeable. The first payday loan may
be an initial choice the consumer makes. But the structure and
unaffordability of that first loan results in a financial debt trap for
subsequent payday loans. With respect to an overdraft fee, the research indicates that it is unintentional. And the typical overdraft
fee is about $34 for, lets say, maybe, a $17 overdraft. We are talking about servicing the unbanked and underbanked. And we have
research that shows that a leading cause of people to become
unbanked or lose their bank accounts is because of the excessive
cost associated with overdraft fees. So I would disagree that payday
loans and overdraft loans are somehow interchangeable and alternate forms of small-dollar credit.
With respect to research, the Pew Foundation recently released
a report that sampled about 100 would-be borrowers and asked
them, it was 100 would-be borrowers that are located in States that
either heavily regulate payday loans, or completely outlaw payday
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00045
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
40
loans. And out of that 100 borrowers, 95 of those did not to go online lenders and only 5 of those did. So what that shows is that
there is an actual low percentage of a low number of borrowers
who are actually seeking out online payday loans in instances
where the storefront payday lenders are actually outlawed.
Mrs. MALONEY. Thank you. Mr. Berlau?
Mr. BERLAU. Yes, I think that is such a good question. What are
the alternatives if you restrict credit or dont allow new forms of
credit, so thank you for asking that, Congresswoman Maloney. And
I am going to dispute my fellow witness, Mr. Edwards. I think the
evidence does show that overdraft fees are and late fees and
bounced checks are frequently a substitute for payday loans, unfortunately. I reference in my written testimony the Federal Reserve
of Kansas Citys Senior Economist Kelly Edmiston and others who
have written about that, in States with highly restrictive laws as
far as credit and payday loans.
Mrs. MALONEY. Thank you my time is almost up. Ms. Bishop, or
Ms. Jackson?
Ms. BISHOP. My research is behind my counter every day, serving the needs of my customers and consumers. But I have a question, and that is, whatever type of online loan we are talking about
here, I dont care, payday, small, whatever, if there is a national
Federal charter that is applied for by companies that are legitimate, and that are trying to do the right thing. The ones in Macau
are not going to apply for that. And the consumer is still not going
to know who they are dealing with. When you go to the Internet,
you all know that this pops up here, that pops up there, and people
have the tendency to click on them. Sometimes, it clicks on itself
for you. People who are not legitimate are not going to get that way
because of a Federal charter.
Ms. JACKSON. Mrs. Maloney, if I may, we are the largest online
lender here domestically, and we offer State-by-State options for
consumers. We are attempting to do better. We would like to offer
longer-term loans. We have scoured all 50 States to see where that
is feasible, and there are about 15 States where we can offer a
longer-term loan. Right now, you asked about the size of the marketplace, 61 percent of online small-dollar loans are done by nondomestic players, and that is only going to continue to grow.
So in order to protect consumers, to let them know that they are
dealing with an OCC-regulated Internet company where there is a
place to call if they have concerns with the CFPB, or the OCC, that
is what we are trying to accomplish here today.
Chairwoman CAPITO. Thank you. Mr. Renacci?
Mr. RENACCI. Thank you, Madam Chairwoman. And I want to
thank the witnesses. Just a couple of comments I heard while you
were talking. Mr. Flores, you said we need to give the consumer
credit for making these decisions that they make as far as shortterm loans. Mr. Edwards, you said payday loans are a choice consumers make. It is interesting because I took the time to actually
go talk to those individuals who are going to these payday loans
and using this service and using this product. These are everyday,
hard-working Americans who are just short on cash, not on a regular basis, sometimes just on an emergency basis, who really appreciate the service, they want this service, they really dont want
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00046
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
41
the government meddling in it much more. They are happy with
the service that they have right now.
I was interested because if you spend a half hour just talking to
the consumers as you said who make these choices, and as Mr. Flores said, give them the credit to make those choices, I am concerned in your conclusion, you said indeed this legislationand
this is to Mr. Edwardsindeed this legislation offers nothing beneficial for consumers. On the contrary, it would lead to direct consumer harm. Can you explain that?
Mr. EDWARDS. Sure. And let me just make sure I clarify with respect to my previous comments regarding the choice. That is within
the context of looking at payday loans with respect to overdraft
fees. Overdraft fees research has shown are unintentional, and I
want to make sure we are clear with respect to the distinction I
was drawing there.
In terms of the harm, if you are talking about consumers who
are in financially fragile households, who are often living from paycheck to paycheck, the purpose and intent of this legislation draws
that demographic. These are people who can ill-afford to be trapped
in long-term debt.
If they are taking out financial services, and research has shown
that they are doing it nowadays to cover actual everyday living expenses like rent or utilities, if they are doing that and they are
standing in debt about 5 or 6 months per year, taking out maybe
8 loans if we are just talking about payday loans, for instance, that
is problematic. It doesnt do the consumer any good because they
are constantly either flipping that loan, paying off the loan and
taking out a new one. That puts them in a cycle of long-term debt,
and that is a huge problem. And I dont think that would be do a
consumer any good. To be quite frank, it is a concern, you can even
argue, of national interest.
Mr. RENACCI. That is interesting, Mr. Edwards, because you are
talking for the same consumer that I talked with who said that
they appreciated that loan, and that they were very happy to have
it. So sometimeswhen I get back in the district, they talk about
how Washington is disconnected. Sometimes, we just have to go
and listen to the people using the services.
Mr. EDWARDS. But Representative, if could I interrupt for a second, the consumers that you are talking to and they say they appreciate those loans, I would be curious to know the follow-up question, if they appreciate being charged sometimes in certain instances triple digit APRs if you look at it, and then being associated with the fees that they have and standard debt for quite some
time, I think the answer might be a little bit different.
Mr. RENACCI. I will tell you what the answer is, because one of
them said to me, would you be willing to give me $100 if I gave
you $107 back in a week? And it is an interesting response that
you have to think about. Because we talk about this high APR, but
we are talking about short-term loans, and how many people are
willing. Some of these people do have low credit, so I think when
you talk to them you will find out, you will get some interesting
answers.
Mr. Berlau, I guess I am a little concerned, and I want to see,
do you have any concerns that the CFPB may take steps to even
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00047
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
42
further constrain the offering of short-term, low-dollar loan products?
Mr. BERLAU. Yes. As a matter of fact, I do have concerns about
that. We areI should say that my organization is involved in a
constitutional challenge to the CFPB because we think the structure lacks accountability. But as far as this bill goes, and some of
the other concerns about it, I think that it makes clear that this
doesnt affect for good or ill what the CFPB is planning to do; it
is just another alternative to offer these loans, and then the CFPB
would have final say.
So yes, I am, but this bill doesnt address that, but it does do
very good things as far as creating alternatives, which then the
CFPB would be able to have a say on as well.
Mr. RENACCI. Ms. Jackson, do you feel whether it is the CFPB
or the States if they further restrict this type of credit, that it will
be more difficult for these individuals that I talked with to obtain
short-term credit?
Ms. JACKSON. We have seen real evidence that attempts to limit
rates, attempts to limit usage, have just exploded the illegal or unlicensed lending market. We saw that with military lending which
was mentioned here earlier today. We cannot make loans to the
military because the rates are so low. And what happened is military members would go online and get loans from offshore lenders.
So we would like to be able to, again, have safe and sound lending requirements, but you cant do it when the rate gets so low.
Also in California, they passed an installment loan law which was
great, but there has only been one license application since because
the rate was too low. So again, back to my scenario, what do you
do if you need $1,000? Residents from California still have to go to
payday lenders, or go find a higher level loan or pay back an
amount right away. So we put consumers at a disadvantage when
we try to protect them.
Mr. RENACCI. Thank you, I yield back.
Chairwoman CAPITO. Mr. Watt?
Mr. WATT. Thank you, Madam Chairwoman. It seems to me that
we are having two discussions here, one of which I am not sure
why we are having it. I am not sure I understand how subjecting
something to Federal regulation is going to increase credit availability; that is one question. Mr. Renacci raised an interesting
point about government meddling in their choices. Most of my constituents would rather have the State government meddling in
their choices than they would the Federal Government meddling in
their choices. And this bill proposes a Federal charter that preempts State law, which makes me raise the same concerns that I
raised when we were debating the Rent to Own legislation in this
committee.
I just dont understand the rationale for it. And I understand the
rationale for it even less now that we have passed Dodd-Frank and
have a Consumer Financial Protection Bureau, which is a Federal
agency that would regulate these entities. I would have understood
it a year ago or 2 years ago, before we had the CFPB.
I dont know that I think the OCC would be any better Federal
regulator than the CFPB would be. And I wouldnt want either one
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00048
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
43
of them to preempt State law, especially if that law, that State law
had a higher threshold of protection for consumers.
And so I guess I am having trouble understanding the rationale
for this bill in general. I raised these questions, obviously I lost, because the billthe Rent to Own bill passed out of here with almost
absolute preemption. This bill, as I understand it, has pretty much
absolute Federal preemption, too. And while we would take small
lenders, small credit people and give them an optional Federal
charter, I justI dont understand it.
So Ms. Jackson, tell me how you think this is going to increase
credit availability to consumers?
Ms. JACKSON. Congressman Watt, it is going to help us keep pace
with technology and what is being offered on the Internet.
Mr. WATT. So you think the Consumer Financial Protection Bureau doesnt have the capacity to do that, and the OCC does?
Ms. JACKSON. First, from what I understand, the OCC has licensing authority, that is why the OCC is looked at as the regulator.
The CFPB will look at the products to determine the consumer protection measures within those
Mr. WATT. So my State has a licensing authority, why would I
opt for OCC licensing over my State which has traditionally operated in this area, the same point Ms. Bishop has raised here? Why
would I want the OCC to be licensing a pawnshop, or a payday
lender when my State doesnt even allow payday lending?
Ms. JACKSON. In North Carolina, Congressman Watt, installment
lending is not prevalent, so the longer-term loans that most people
would want some additional options would be available through the
Federal charter. Installment loan
Mr. WATT. What additional options are you talking about would
be available that arent currently available if we created a Federal
charter forI dont understand that?
Ms. JACKSON. Some States, again, it is not addressed to the
usury laws, or the limits do not allow an installment loan. Right
now if people would like to have a longer-term loan, they would
have to go to the Internet for States that dont provide a licensed
lender. So as a national chartered lender, I would be able to offer
that, they would look for the union label, or whatever we would
want to say that CFPB or OCC regulated entity. If it is not available in their State, they will go to the Internet, they will get what
they see.
Mr. WATT. Forgive me for just saying, you have not convinced me
of this. Of course, they have been trying to convince me for 3 years
on Rent to Own that this is a good idea. I think this is a terrible
idea.
Ms. JACKSON. Congressman, we respect your opinion. What is
happening, though, is in the marketplace, online, 61 percent of the
market is being served by non-domestic lenders.
Chairwoman CAPITO. The gentlemans time has expired. Mr.
Luetkemeyer for 5 minutes.
Mr. LUETKEMEYER. Thank you, Madam Chairwoman. The previous panel talked about credit history. Ms. Jackson, would you
like to address that with regards to people who utilize your service,
they establish a credit history by paying their loans off on time or
picking up two or three more as a result and eventually move on,
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00049
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
44
or take advantage of a more traditional loan at some point. Can
you give me a little credit history analysis how that helps?
Ms. JACKSON. Currently, the short-term lending product is anything less than 30 days. It typically will not include peoples credit,
because the credit bureaus do not want to take that data. And so
we are finding that being a struggle for consumers to try to figure
out how to use these products and improve credit.
What we envision with this charter is to allow for those longerterm products, the fact that bureaus we already know that we
talked to will accept that data so we can graduate people from the
smaller short-term loans, into, again, maybe a midway product
where they could get their credit built so then they can deal with
a bank.
So we do have to think about how consumers build their credit,
and how can they do it with non-bank credit products, because if
you dont have credit, you are not going to get a bank loan, so how
do you transition consumers, and we are extremely interested in
trying to figure that out.
Mr. LUETKEMEYER. As a former bank regulator and someone in
the banking industry for 30 years, I have made probably thousands
of these small loans, because I come from a little bitty small town,
with a small bank. We dont have a pawnbroker in our town; we
dont have a payday lender or a small loan lender. We are it. And
so, I have dealt with this all my life. And we sat there across the
table from a young lady who is stuck in a situation, a single mother, has no way to make her car payments because she doesnt have
a car because her husband just left her last night and she is sitting
there in front of you. She needs some money to be able to go out
and buy a car to be able to get to work, to be able to pay the bills
for the baby she has in her arms. How do you solve that problem?
You solve it with being able to provide credit. Access to credit for
people like that in an emergent situation, this is what we are trying to do today. It is interesting to me to listen to some of the comments. Mr. Edwards, did you read the bill by any chance?
Mr. EDWARDS. I did.
Mr. LUETKEMEYER. Where in there did we circumvent the CFPB?
Mr. EDWARDS. Congressman, as you well know, the CFPB, under
Section 1024 of Dodd-Frank is tasked with supervising non-bank
entities. And under your bill, having the OCC to supervise, examine, prescribe rules and regulations, and to allow the OCC to approve a product sounds like it is encroaching upon what is written
in Dodd-Frank already.
Mr. LUETKEMEYER. If you go back and read 4(k), the CFPB has
full regulatory authority over all consumer financial protection
under laws that regulate these lenders. There is no change, there
is no taking away of this. All we are doing, as Ms. Jackson said,
the documentation to issue the charter under the OCC
Mr. EDWARDS. There is obfuscation in terms of what the CFPB
is tasked to do under Dodd-Frank
Mr. LUETKEMEYER. There is no intent to circumvent the law, and
the law in this bill specifically spells that out.
Very quickly, my time is about gone here. I have one quick question. Mr. Berlau, you made a comment that this would encourage
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00050
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
45
entrepreneurs. I was curious how you see this encouraging entrepreneurs?
Mr. BERLAU. I do, in two ways. First I see, and if Ms. Bishop has
a cost estimate of how much it would cost a small lender to get licensure from the OCC under this bill, I would like to see it and
perhaps we can make some improvements. But I scrutinize legislation for cost of small business, and I see nothing where even one
pawnshop cant apply for the OCC and become a national lender
and offer consumers more choices.
And the other way is, as I mentioned in testimony, in the written
testimony, Thomas Durkin of the Federal Reserve has found that
actually auto title loans are utilized not only by consumers, but by
landscaping businesses, by plumbers, and others who dont have a
line of credit with a big bank, and utilize short-term loans in a
similar way as consumers do. And of course, a lot of small businesses use credit cards49 percent, so this would just create a lot
more options for non-banks for them.
Mr. LUETKEMEYER. Thank you. And just one following comment.
I know, Mr. Edwards, you made the comment a while ago that people who overdraft normally do it unintentionally. I can tell you for
over 30 years in the banking business, they are supposed to keep
a checkbook and make sure that they dont write more checks than
they have money in the bank. It is not unintentional; it is irresponsible.
Mr. EDWARDS. If I could respond to that, Representative. The financial institutions are not supposed to reorder transactions from
high to low causing consumers to overdraft, unfortunately. And
that is a situation which is costing consumers countless amounts
of money, and courts have slapped fines upon some of the larger
institutions.
Baca?
Mr. BACA. Thank you very much, Madam Chairwoman. Just to
ask one of the same questions I would like to ask Mary Jackson,
it was sort of asked, but many of the opponents of the bill would
like to simply frame this bill as a payday bill and talk about the
problems of specific products. This is done even though the traditional payday loans are prohibited. However, what is lost in the debate is the innovation aspect. Currently, many national banks and
large credit unions are provided the ability to operate on a Federal
platform that allows them to come up with new products to better
serve the customers. And of course, this only works for those who
have access to mainstream financial services. Can you talk about
the aspects of this bill? And would the Federal standards created
by this bill allow for the same increased innovation, specifically to
serve consumers who need credit for expenses that cost more than
the typical payday loan?
Ms. JACKSON. Yes, Congressman Baca. The Federal charter,
again, is designed to drive innovation, it is very difficult for banks
and credit unions to do that because they put deposits at risk. So
they are going to be more circumspect on who they are going to
lend money to; they are going have higher credit score standards.
And there has been so much in this space to try to analyze the ability for consumers to repay. We have so much more data out there.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00051
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
46
We have a team of 10 people, our analytics team, who looks at the
data all the time to determine if we can make that loan and the
customers ability to pay us back. So there has been so many dynamic things that have happened in our sector and we would like
to share that in a national way.
We would also like to be able to perform some of these services
as a marketer servicer to banks so they can grow their portfolios
and grow their banking business. But when you put deposit at risk,
and when you put FDIC insurance at risk for these types of loans,
it is very difficult. We believe we can do that in partnership or directly with consumers.
Mr. BACA. Thank you. And one of the questions asked, it is very
difficult to determine, how many times or how many payday loans
have actually been offered, because we know that is 30 days. So
there is no way of monitoring how many of those have been done.
But right now, isnt it very hard for small-dollar lenders to know
how many loans a consumer has taken out unless they actually go
to the same place? However, the chartered institutions would be
have a strong Federal oversight, and wouldnt it lead to greater
transparency and more complete credit history for consumers?
Ms. JACKSON. Again, folks in the non-bank sector who underwrite unsecured loans are going to use all kinds of data points,
companies like Teletrack, where companies do put in how much a
person has borrowed with the payday loan. We use that type of
service to determine if we are going to be the third lender on the
list, is that a good idea? It usually isnt. So with that said, the technology, the ability to offer more choices to consumers is important.
I am not sure if I answered your question.
Mr. BACA. Right. But the ability to track and know how many
loans the individuals, we would be able to do it. It would be a lot
easier than the way the system is under the payday lending because you wouldnt know how many loans that person has had because there isnt that transparency and oversight. Having a charter, we would be able to determine how many loans that person
has actually obtained.
Ms. JACKSON. Right. Under a charter, you can offer a longer-term
loan, the credit bureaus will take that data and then you will have
what you need to make sure that, again, they have the ability to
pay, looking at that credit history.
Mr. BACA. Because payday lending can only offer it up to 30
days, what is it? 30 days? Less than 30 days? And the only others
that I know of are long-term loans. Do you know anybody else who
offers long-term loans to individuals who may have bad credit? Any
of you on the panel?
Ms. JACKSON. Oh, I can offer
Mr. BACA. Loan sharks, right? Loan sharks. We dont want to get
a loan shark. We want them to establish credit, deal with their
credit scores as well, and this is what happens to many individuals,
they end up going to a loan shark because they can only get $400
from a payday lender, they can get anywhere between $500 to
3,000 which is the average cost, because when it comes down to
just going a grocery store, buying groceries, it is almost $500 just
to buy groceries not to mention any other kind of payment that you
have.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00052
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
47
Ms. JACKSON. Congressman, even in installment loaning, we did
have a witness here from Nebraska, and they do have 13 license
installment lenders there. But it has to be a secured loan, and it
also has a 16 percent per annum, but because it is a banking entity, they dont have to show their origination fees or other fees as
part of the calculation. We need a bigger, honest dialogue about
what the loans look like in comparison to costs in APRs and fees,
what is included and what is not.
Mr. BACA. I know that my time has expired, but doesnt this bill
specifically allow chartered institutions to offer products that will
allow and promote building of savings of credit and history scores?
Ms. JACKSON. Yes, sir.
Mr. BACA. I agree with you; that is why there is bipartisan support for this.
Chairwoman CAPITO. I couldnt tell by the way you posed that
question.
Mr. Huizenga?
Mr. HUIZENGA. Thanks, Madam Chairwoman, I am not quite
sure how I follow up that softball. Ms. Bishop, I do apologize. I
came in right after your testimony. But I want to have you explore
a little bit about what you believe iswhether it is a threat somehow to your business, will it put the pawn industry out of business,
and just hear a little bit about that and get some other opinions
on that as well.
Ms. BISHOP. We feel that it would create an unlevel playing field
in the market where you have a Federal charter holder who is not
subject to the same licensing regulations, fees, and examination
that an individual pawnbroker is on a daily basis through their
State, in my case, my State banking department, my city license,
my county license. In some States, there is a requirement for continuing education for pawnbrokers. That would not be required of
a Federal charter.
Mr. HUIZENGA. This is purely bad lawyering maybe, not knowing
the answer to the question before you ask it, but my impression is
that it is not common to have a pawn owner own in multiple States
in that kind of thing, is that accurate?
Ms. BISHOP. Most of our 1,800 to 2,000 members of the National
Pawnbrokers Association are small, independent, family-owned
businesses, maybe two or three shops, maybe up to a dozen, and
usually not across State lines. In some cases, they do have shops
in multiple States, but not usually.
Mr. HUIZENGA. Mr. Berlau or Ms. Jackson or anybody else, do
you believe this is a threat to the pawn industry?
Mr. BERLAU. Congressman
Mr. HUIZENGA. I need you a little closer to the microphone so we
can hear you in the room, but not everybody
Mr. BERLAU. Congressman Huizenga, if I can offer an analogy.
Sometimes you have banks with just one branch who get chartered
by the Federal Government, the OCC, we hear First National, others and sometimes there are very large State banks, so I do not
and I scrutinize legislation like this for what burden it places on
small business, see what the burden is on a small pawnshop or
lender applying to the OCC and being able to carry that charter
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00053
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
48
and being able to offer some innovative products, that small businesses, small lenders develop.
Mr. EDWARDS. If I may respond, what this bill is a threat to, it
is a threat to financially fragile households staying afloat.
Mr. HUIZENGA. Do you believe that the pawn industry has that
same threat? Have you seen Pawn Stars? Because if you are talking about $7 on a $100 loan as being a threat, what about walking
in and saying you know what, I dont have time to wait for it to
get pawned, my $1,000 item, I have to sell it for $500, because I
understand the person owning the store has to make a profit. And
the only way for them to look at it is pretty much doubling their
money, is that not a threat?
Mr. EDWARDS. As I mentioned before, it is a direct threat to the
financial viability of low-income households.
Mr. HUIZENGA. Which is, pawning or
Mr. EDWARDS. This bill.
Mr. HUIZENGA. Do you have a problem with the industry or a
problem with the bill?
Mr. EDWARDS. The way the bill is drafted, yes, sir, we have a
problem with this particular piece of legislation. It is not so much
the industry. What we are concerned about is, if loans are made,
they have to be sustainable loans, transparent loans, loans that are
not designed to perpetuate financial debt traps. And what this legislation would do is it would grant the charter holders essentially
a national hall pass to go where they want, and when they want,
and do on a Federal level what they havent been able to do, or
some instances, it has been scatter shot on a State level.
Mr. HUIZENGA. But you would acknowledge that some States
have much tighter and some have much looser laws, correct?
Mr. EDWARDS. There are varyingamongst the 50 State jurisdictions, there are varying laws. But this particular piece of legislation would allow the charter holders to circumvent those laws, and
that is a problem because the States have a keen interest in this,
they are on the ground, they are on the front lines combating some
of the more toxic abusive products. And they know what is best for
their citizens.
Mr. HUIZENGA. So I assume, you like what happens in Chairwoman Capitos State of West Virginia where it is not allowed, but
maybe dont like what is happening in another State that has absolutely no restriction. How do we maybe balance that out?
Mr. EDWARDS. I tell what you we like, we like to see consumers
in loans that they can afford, no balloon payments, no loans with
exorbitant APRs. Those are the things that are not good for the
consumers and make them worse off than they were before they
took out a loan.
Chairwoman CAPITO. Mr. Meeks?
Mr. MEEKS. Thank you, Madam Chairwoman. I am sorry; I have
been listening to some of the hearing up in my office and running
around from meeting to meeting. But I felt compelled to make sure
that I get back here to ask a few questions. But also, in listening,
I think that I have lived the life, I sit up here as a Member of Congress today, in a nice suit, et cetera. But I come from public housing, my parents didnt have a lot of money, and they lived from
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00054
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
49
paycheck to paycheck. And certain times, certain things would happen, they needed some money and they had no options.
The option is to go out to a loan shark or someone else, and if
you dont pay it back, they are going to beat you in the head, that
is my experience. And I find that poor people especially have no options when they are tryingthey are smart people, in fact, they
know how to rob Peter to pay Paul. In my household, that is what
you did: robbed Peter to pay Paul to make sure you could make it
to the next day. The fact of the matter is, if that wasnt the case,
I might not be sitting here today because certain times, my parents
had to rob Peter to pay Paul to help me get through school. If they
didnt, the school would have put me out if tuition wasnt paid. You
have to figure out how you get certain things done.
So that becomes extremely important because the whole idea, I
think, is to put the loan shark, as my good friend Mr. Baca indicated, out of business. Now if you wanted to do something that,
lets say make all the banks, make all the banks give low or small
loans, they wont do it. Why? Because it is not in their interest.
They cant make money from it or whatever the deal. Nobody talks
about that, but if you made all the banks give short-term loans to
help individuals who needed to just make it for a month or so, then
we might not be here.
The reality is those banks dont exist. Therefore, if you dont have
a bill like this, there are no options. So the person who is poor, who
wants to rob Peter to pay Paul, has no options and wants to do the
right thing, so therefore they may go to someone who ultimately is
really bad for them.
So with the voice of knowing what my life has been, trying to figure it out. Mr. Flores, let me bring you into the discussion. If a bill
like H.R. 6139 is not adopted, tell me, do you know of any other
viable approach for ensuring that individuals like myself in the
past, or my family, underserved consumers, who are unable to obtain smaller loans from banks who are typically currently have
only an limited number of relatively high-cost credit alternatives
from non-bank lenders, that are allowed by State laws and had a
broad range of more innovative and affordable credit laws in terms
of their needs.
If we dont do this, if we dont pass something like this, what
other alternatives or options would someone like my family have
when I was growing up, that they would have today if we dont
pass a bill like this?
Mr. FLORES. There are very few options. As a matter of fact, on
page 22 of my report, this for the five boroughs of Manhattan, it
shows where the bank branches are and are not, and the bank
branches are leaving the communities, the low- to moderate-income
communities where a lot of where your constituents live. And so
the only people who are there providing loans are the alternative
financial services providers. And they cannot get the same service
from State to State because of the vagaries of State legislation.
And so we need to offer something that allows the options. We
are not mandating somebody to go out and get a loan, whether it
is an overdraft, a payday loan, or installment loan or title loan. All
we are saying is we are giving them options based upon their specific needs to do what is in their best interest.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00055
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
50
Mr. MEEKS. Let me ask this question too, because I think I heard
the last panel, there was an OCC witness concerned about the applicability of consumer protection laws and standards under this
bill, under H.R. 6139. Under this bill, and I open this up to anyone,
would NCCCs be subject to the Equal Credit Opportunity Act?
Would they be subject to the Truth in Lending Act, or how about
the Fair Credit and Billing Act? I throw it out to anybody.
Ms. JACKSON. Congressman, we are now. If you are a State license lender, you are following these Federal laws and we will continue to do so.
Mr. EDWARDS. Congressman, if I can briefly respond, as the bill
is drafted, it lists these credit companies which must comport with
some of the laws that you mentioned, which are about 18 statutes
that were transferred to the CFPB, but what it does not mention
specifically with respect to the CFPB is UDAAP authority, and I
think that is problematic because the CFPB has invested with this
particular authority to regulate, to make sure that it stamps out
any unfair deceptive abuses or practices. And this bill specifically
does not mention that and that is problematic.
So if I could back up one second and respond to your previous
point about being a single-family household and not having many
credit options. I, too, grew up that way and my mom often visited
a pawnbroker, and sometimes the TV was there and sometimes it
wasnt, I missed Saturday morning cartoons and that was it. But
thankfully she did not seek out a payday lender, it would have kept
her and us in long-term debt.
Grimm?
Mr. GRIMM. Thank you, Madam Chairwoman. Just so I can get
some perspective on this, Ms. Bishop, maybe you can help me. Approximately how many $2,000 loans does the average pawnbroker
make in a year?
Ms. BISHOP. Thanks for that question. And this kind of goes back
to what your colleague spoke about, Pawn Stars and the television
shows. What you see on TV is not what happens every day, and
actually, our statistics are that on the average, pawn loans are redeemed 85 to 90 percent of the time across the country. They are
notnot everybody is bringing in a Civil War cannon to sell to
somebody.
Mr. GRIMM. Im sorry, my time is really short. The question,
though, is how many $2,000 loans a year on average would a
pawn
Ms. BISHOP. It depends where you are located. In my particular
instance, a $1,000 loan would be a big loan for me. In more metropolitan areas, say, New York and Los Angeles and so forth, a
$2,000 loan would not be out of the ordinary. How many times a
year, I have no
Mr. GRIMM. Percentage-wise comparedI am assuming where
you are, an average loan is probably $300 or $400.
Ms. BISHOP. Actually nationwide, the average pawn transaction
is between $100 to $150.
Mr. GRIMM. So compared to that, is it a very small percentage
nationwide?
Ms. BISHOP. That would be making $2,000 loans?
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00056
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
51
Mr. GRIMM. Yes.
Ms. BISHOP. Yes.
Mr. GRIMM. Okay. And I think that is a big part of what we are
here discussing today is that the mid-size loans, there is a tremendous void, there is a complete lack of options for people. And we
just heard that is a small amount of what pawnbrokers are doing.
Ms. BISHOP. But it is not a small amount compared to the licensing and everything that we have to do under our State laws.
Mr. GRIMM. Okay.
Ms. BISHOP. We would still have to do things that a Federal
charter holder wouldnt.
Mr. GRIMM. Do you think pawn loans should be the only option
for American consumers of modest means?
Ms. BISHOP. No, sir.
Mr. GRIMM. What other options does your company have for consumers who need small loans but dont have any collateral?
Ms. BISHOP. Our State legalizes payday loans, and it has been
that way for about 10 years. I am in a town of about 4,000 people.
There are six payday stores in that town, there are four community
banks, and one credit union.
Mr. GRIMM. Do you have your own company or do you just represent the others?
Ms. BISHOP. I have my own pawn store, yes, sir, Dollar Pawn.
Mr. GRIMM. Okay, at your pawn store, can I get a loan from you
if I have no collateral?
Ms. BISHOP. You can getI also have a payday loan license, and
you can get a payday loan, under State supervision from the State
of Alabama, their guidelines.
Mr. GRIMM. Okay.
Ms. BISHOP. And I pay for that license separately.
Mr. GRIMM. Mr. Edwards, you mentioned before that you were
very concerned about the predatory nature of some of these loans
and that the States are in a position to manage that, but does that
mean the CFPB and the OCC cant do that?
Mr. EDWARDS. No, that does not mean that at all. The concern
here is that the OCC, under H.R. 6139, would have the authority
to approve products, to grant national charters, and prescribe regulations for the charter holders. And that is a concern because the
CFPB has the authority under Dodd-Frank to regulate these nondepositories.
Mr. GRIMM. But the CFPBs job, even if that charter is granted,
is to make sure the entity that was given a charter is, in fact, not
harming the consumer with some of the devastating things you
said. Am I wrong? Am I misreading the legislation?
Mr. EDWARDS. If your question is, is the specific mission of the
CFPB to protect consumers and then force Federal consumer financial law, you are correct, Representative. But what this bill will do,
it completely circumvents the CFPBs authority to do so with respect to certain nondepository entities, and that is concerning, as
well as preempt some of the tough State consumer protection measures that are out there.
Mr. GRIMM. I disagree. I dont think it takes anything away from
the CFPB, and the language in the bill is very, very clear on that,
but my time is up. I yield back.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00057
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
52
Mr. RENACCI [presiding]. Mr. Green for 5 minutes.
Mr. GREEN. Thank you, Mr. Chairman, and I thank the witnesses for appearing. Ms. Bishop, it has been revealed that you
have hands-on experience in the sense that you actually operate a
business. Is this correct?
Ms. BISHOP. Yes, sir.
Mr. GREEN. Let me just ask by way of a show of hands, are there
other persons who actually operate a business that will be impacted, operate the actual business?
Ms. JACKSON. Im an employee of a business, a very large business.
Mr. GREEN. Pretty large.
Ms. JACKSON. Yes, sir.
Mr. GREEN. I am not trying to demean you; I appreciate what
you have been able to accomplish.
Ms. JACKSON. A Texas-based business.
Mr. GREEN. Maybe I will do some follow-up on what you said
about a Texas-based business. Ms. Bishop, as the only person on
the panel who actually operates a business, I detected a sense of
urgency from you that I havent sensed in the others, and I assume
some of it emanates from your concern for the life of your business.
You have expressed some of these concerns. Are you of the opinion that your business may have to go out of business if this occurs? If you were downsized, would you lose employees? What is
the sense of urgency that I can sense in your intonations and your
demeanor?
Ms. BISHOP. The sense of urgency, as I said in my statement, is
the creation of an unlevel playing field that would be created by
a Federal charter holder, where someone, one of these mega providers could provide Internet loans, could provide pawn loans on
the Internet, payday loans on the Internet, and maybe they would
not have to have the same licensing regulation examination and
education requirements in some areas. And it would put the independent small business owner at a deficit.
Mr. GREEN. You mentioned educationthe legislation does not
require education; in fact, it preempts these requirements at a
State level. What type of education are you or your employees required to have?
Ms. BISHOP. In some States, there is a continuing education requirement for obtaining and keeping your pawn license. There is
also, in some States, and Texas is one of them, a requirement that
each employee of a pawn operation has to be licensed by the State
as well. So all of this would not be subject to a Federal charter
holder.
Mr. GREEN. Are you speaking today for other persons who operate similar businesses, and do they have similar concerns?
Ms. BISHOP. I am speaking for myself, and for the National
Pawnbrokers Association, yes, we are very concerned about the position that it could place small independent family-owned businesses in, and some of these businesses have been in operation for
generations.
Mr. GREEN. Are most of these small businesses less than 25 people? More than 25 people? 100 people? What are we talking about
when we say small business?
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00058
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
53
Ms. BISHOP. I guess I am probably a good example. I have 5 employees, and that includes myself, and that can go up to maybe 25,
30 employees in a larger store that maybe runs longer hours of operation. It is an operational question, and location as well.
Mr. GREEN. So a simple exemption for your business that would
exclude you from this would not suffice, because your concern is
the competitive disadvantage that you will find yourself having to
negotiate in if this passes. Is that a fair statement?
Mr. GREEN. It is just not enough to say, okay, we will let the
pawnbrokers be exempt. Your concern is whether you will have existence. Is that what you are telling me?
Mr. GREEN. And let me ask you now about how you have through
thesehow many years have you been in business?
Ms. BISHOP. Twenty-four.
Mr. GREEN. Twenty-four years.
Mr. GREEN. Do you think you know what is good for your business? Do you think you have a good sense of what works best for
your business after 24 years?
Ms. BISHOP. I would certainly hope so, or I still wouldnt be
there. I would have a show on TV.
Mr. GREEN. Thank you. I hope that you will continue to stay in
business.
I genuinely am trying to find some sense of where we should go
with all of this. And I say it to you sincerely, I have tried to stay
through the entire hearing. There were other things that were tugging at me. But I want to get some sense of what we really should
do, and I thank you for your testimony because you have a handson experience with this, and it means a lot to me. Thank you very
much.
Ms. BISHOP. Thank you for your attention.
Mr. GREEN. Thank you, Mr. Chairman.
Mr. RENACCI. I recognize Mr. Fincher for 5 minutes.
Mr. FINCHER. Thank you, Mr. Chairman.
Where Mr. Green left off to Ms. Bishop, why again would you be
at a disadvantage if this bill is passed? Specifically, what is going
to put you at a disadvantage to competitors?
Ms. BISHOP. First of all, I pay well over $1,000 just for my licenses.
Mr. FINCHER. Your competitors would not pay that?
Ms. BISHOP. They wouldnt pay State or local licensing, no, sir.
That is one thing right off the bat. Put a pencil to it.
Mr. FINCHER. Okay. And you would have to pay that, and they
wouldnt?
Mr. FINCHER. Why wouldnt you just not pay it?
Ms. BISHOP. Because I am not a Federal charter holder, and if
I am going to stay in business in my State, I have to be licensed.
Mr. FINCHER. Okay. So it just would be the license and the fees.
That is what would put you at a disadvantage. And how much are
those fees in a year?
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00059
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
54
Ms. BISHOP. It could also bein my particular case, with one
store, it is in excess of $1,000. It also could createif they can operate, a large Federal charter holder can operate more efficiently
and at less cost to them, they may be able to undercut the fees and
services that non-Federal charter holders are able to offer. There
is lots of potential forthere is blue sky.
Mr. FINCHER. I get it.
How many stores do you have?
Ms. BISHOP. I have one.
Mr. FINCHER. You have one. And what is your gross revenue in
a year?
Ms. BISHOP. Approximately $400,000 to $500,000.
Mr. FINCHER. Okay. And the fees are $1,000, your State fees are
$1,000?
Ms. BISHOP. Yes.
Mr. FINCHER. Yes, sir, Mr. Flores?
Mr. FLORES. I think we are losing sight here of something, and
that is I understand small business, I have worked with a lot of
small banks and the threats that competition provides. But it
seems to me that the focus should be on the consumer and what
is best for that consumer. And if competition brings more efficiency,
lower costs, and lower fees to the consumer, then who benefits?
Ms. BISHOP. We are not afraid of competition, if it is level.
Mr. FINCHER. Let me say this, and then I am going to let Ms.
Jackson speak. The consumer should have a product offered to
them that is competitive, and they should be able to choose for
themselves. But also there is nothing wrong with competition, and
in the free market, in our system of capitalism, where making a
profit there is nothing wrong with, it is something good. But we do
need to make sure that we are all playing by the same rules. This
is kind of complicated.
Ms. Jackson, would you like to comment?
Ms. JACKSON. One, Fran and I are good friends, and we have
served together and worked for the pawn industry, and we have
about 1,000 locations. But when it comes to pawn, we coexist today,
large lenders and small lenders. We also have the zoning restrictions. Lots of cities dont want a pawn shop on every corner, so you
have that restriction, and if you are nationally chartered, that is
not going to go away.
The other thing is when you look at the OCC license holders, a
lot of them are the national banks, but the majority of the license
holders under the OCC are single banks in small towns. So, it is
like the National Bank of Tyler, the National Bank of Gaston. It
is up to the lender whether they want to be State-regulated or federally-regulated.
And believe me, if we are licensed under the OCC, we will have
fees. We are going to have to pay for ourselves and all the oversight. So those fees will be realized by the national charters, just
like they are for the banks today. Banks have to pay a national fee
to the OCC, or they are going to pay a State license fee.
Mr. BERLAU. Congressman Fincher, if it does cost less, or if it
would cost less to get a Federal charter than a State license, the
solution under this bill forand I am not sure it would be, and I
think the focus should be consumersthe solution for a small lend-
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00060
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
55
er would be to apply for a Federal charter. There are one-branch
banks, small banks, lots of small banks, that have Federal charters, like the First National Bank, and there is nothing that I see
in this bill imposing a cost burdenindeed, the situation described
was that it may cost lesspreventing a small pawn shop or lender
from getting a Federal charter under this bill.
Mr. FINCHER. I am confidentagain, you are successful in your
businessesthat in America you will find a way to make it work,
because that is who we are as a country. But, again, I think we
need to be careful, walk slow. But you will have the choice to
choose between becoming federally-chartered or regulated by the
State. And we just appreciate the testimony today and thank you
for your hard work.
I yield back, Mr. Chairman.
Mr. RENACCI. Thank you.
The gentleman yields back.
I want to thank the members of the panel. I think your testimony was very informative.
The Chair notes that some Members may have additional questions for todays witnesses, which they may wish to submit in writing. Without objection, the hearing record will remain open for 30
days for Members to submit written questions to these witnesses
and to place their responses in the record.
This hearing is now adjourned.
[Whereupon, at 1:13 p.m., the hearing was adjourned.]
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00061
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00062
Fmt 6633
Sfmt 6633
K:\DOCS\76120.TXT
TERRI
APPENDIX
July 24, 2012
(57)
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00063
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
58
STATEMENT BY
JOHNBERLAU
SENIOR FELLOW, FINANCE AND ACCESS TO CAPITAL
COMPETITIVE ENTERPRISE INSTITUTE
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND
CONSUMER CREDIT
Washington, DC
.July 24, 2012
Chairman Capito, Ranking Member Maloney, and honorable members of this subcommittee, thank you
for this opportunity to present testimony on behalf of my organization, the Competitive Enterprise
Institute, on this hearing examining important concerns about access to credit and capital among
consumers and small businesses, and both federal and state regulatory impediments to this access.
This hearing also shines light on one ofthe most untold stories on the workings of Congress. This story is
that
believe it or not - members of Congress are working together and finding common ground on
legislation that would pare down excessive regulations that block stable and transparent sources of
credit and capital for both consumers and entrepreneurs. And they are doing so by getting together on
bills that lower barriers for many sources that provide consumer and business financing: community
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00064
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.001
banks, credit unions, and, as this hearing will explore, nonbank lenders or nondepository creditors.
59
First, there was the Jumpstart Our Business Startups (JOBS) Act, signed by President Obama in April after
it passed this House overwhelmingly. The JOBS Act provides relief from some of the most onerous
provisions of Sarbanes-Oxley and Dodd-Frank, provisions that make it especially difficult for smaller and
emerging growth companies to raise capital and go public. It also greatly aided community banks by
quadrupling the number of shareholders they may have without being subject to a multitude of rules
from the Securities and Exchange Commission.
Then there is there is the Small Business Lending Enhancement Act (H.R. 1418) with cosponsors ranging
from some of the most conservative Republicans to some ofthe most liberal Democrats, which would
raise the cap on the business lending that credit unions can provide to their members.
And then there is the legislation that is the subject of this hearing, the Consumer Credit Access,
Innovation, and Modernization Act (H.R. 6139), co-sponsored by Congressmen Blaine Luetkemeyer (RMo.) and Joe Baca (D-Calif.) This bill would give nonbank lenders, or nondepository creditors, the option
of being chartered federally by Office of the Comptroller of the Currency (OCC), to allow them to make
the same type of loans to consumers and entrepreneurs across state lines. Creating this option for these
creditors - who lend every day without the guarantees of deposit insurance or other government
backing -- would extend a healthy source of credit to underserved consumers and small businesses
without putting a dime of taxpayer dollars at risk.
My organization, the Competitive Enterprise Institute, is a Washington-based free-market think tank
that since its founding in 1984 has studied the effects of all types of regulations on job growth and
economic well-being. As we have said before, we follow the regulatory state from "economy to
ecology," and propose ideas to "regulate the regulators" and hold them accountable so that innovation
and job growth can flourish in all sectors.
Our theme on job growth has been "liberate to stimulate," because as our Vice President Wayne Crews
has observed, one doesn't need to teach - or subsidize -- grass to grow. Rather, remove the rocks
obstructing its growth, and it will grow wide and tall.
My title at CEI is senior fellow for finance and access to capital. And to increase access to credit and
capital, CEI proposes a public policy strategy that can best be described with a phrase sometimes
associated with energy exploration: "All of the above." Banks, credit unions and non bank lenders all
have a role to play in expanding credit for responsible consumers and entrepreneurs. And all should be
able to operate free of excessive regulation.
That's why we supported the regulatory relief for community banks in the recently enacted JOBS Act.
It's why we support allowing credit unions to make more business loans to their members. And it's why
we support H.R. 6139's giving nonbank lenders the same opportunity to offer financial services through
a national charter that banks have had for 150 years.
CEI has long supported optional federal chartering as a part of our goal of what we call "competitive
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00065
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.002
federalism."AS our chairman Michael Greve, who is also a fellow at the American Enterprise Institute,
60
puts it, "Real federalism aims to provide citizens with choices among different sovereigns [and]
regulatory regimes."
Neither states nor the federal government are perfect, and we believe the best system of regulation is
fostered when they learn from each other by competing with each other, allowing consumers and
entrepreneurs to help decide what system of regulation is the best. We've long supported expanding
the system of optional federal chartering that has existed for banks to other financial services such as
insurance.' The sponsors of H.R. 6139 have made a convincing case to us that optional federal
chartering would work well for nonbank lenders as well.
After all, all this would basically do for unsubsidized nonbank lenders is to create the same system of
optional federal chartering that has existed for banks for almost 150 years, and at the very same federal
ace. Under the Civil War-era National Bank Act, banks could apply for a national charter
ace. Many banks chose to stay with their state regulators, but competition from federally
agency - the
through the
chartered banks lowered the cost of credit and capital for everyone.
One of the clearest examples of this is what happened in the market for credit cards when the Supreme
Court clarified in its unanimous 1978 decision Marquette National Bank of Minneapolis v. First of Omaha
Service Corp that federally chartered banks could offer credit cards to consumers across state lines. Over
the next few years, not only did access to credit increase, but credit became overall cheaper. Companies
slashed interest rates and fees, and many got rid of the annual fee that had previously made credit cards
costly for middle class consumers. Some consumers used this access to credit irresponsibly, and some
credit cards used deceptive marketing tactics, for which there should be swift punishment, but overall
most American benefitted from access to credit at a much lower cost.'
A similar reduction in the cost of credit - and increase in access to credit -- could occur under a system
of optional federal chartering for nonbank lenders. This would work to the benefit of lower income
consumers
currently priced out of mainstream financial instruments such as credit and debit cards - as
well as small entrepreneurs who can't get traditional bank loans or venture capital investment.
Research on entrepreneurship from the Kauffman Foundation and other respected sources, as well as
some prominent specific examples, shows that there is much less of a gulf between personal credit and
business credit than some policy makers may believe. Sergey Brin, for instance, started what is now
Google Inc. as a college student using his personal credit card. Now-Famous filmmakers such as Spike
Michael S. Greve, Real Federalism: Why It Matters, How It Could Happen, AEI Press, Washington, D.C., 1999
Smith-Bozek, "Pros and Cons of Optional Federal Chartering for Insurers," Competitive Enterprise
Institute, WebMemo No.1, January 15, 2008, http://ceLorg!sites!default/files/Jennifer%20SmithBozek%20-%20Pros%20and%20Cons%20of%200ptional%20Federal%20Chartering%20for%20Insurers.pdf.
3 Todd J. Zywicki, "The Economics of Credit Cards," Chapman Law Review, Vol. 3:79, 2000
http://www.globaleconomicsgroup.com/publication/the-economics-of-credit-cards/
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00066
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.003
2 Jennifer
61
Lee maxed out their credit cards to make their first films,' And the Kauffman Foundation finds that
s
nearly half of all entrepreneurs use personal credit cards
There is also evidence that entrepreneurs utilize nonbank lenders more typically associated with
consumer borrowing. Former Federal Reserve senior economist Thomas Durkin has written: "Small
businesses sometimes use consumer credit products that might be considered fringe financial products,
For instance, small independent businesses such as landscaping, plumbing, and handyman services may
use auto title loans as a source of short-term working capitaL'"
Durkin further explains: "An independent landscaping company may need several hundred dollars to
purchase sad and bushes for a job, orfor temporary cash to meet payroll while finishing a job, or
awaiting payment In these cases, the proprietor may pledge his pick-up truck to obtain the necessary
capital to buy the supplies to complete the job. Then when the job is complete-often only days laterpayment is made and the owner can redeem the collateral.'"
H.R. 6139 would broaden these options and lift barriers to loan innovations specifically suited to small
entrepreneurs. And it also would move away from the flawed reliance on the annual percentage rate as
a measure of a short-term loan's fairness and effectiveness. As I point out in my recent study, "The 400
Percent Loan, the $36,000 Hotel Room, and the Unicorn", if "the financing costs of other goods and
services were measured on an annual basis, it would be easy to lob 'predatory pricing' charges against
their producers as well,'" As the distinguished economist Thomas Sowell points out, "Using this kind of
reasoning - or lack of reasoning - you could ... say a hotel room rents for $36,000 a year, [but] few
people stay in a hotel room all year'"
Closer to home, if common bank fees - such as late payment and overdraft charges were subject to the
APR measurements
they would have astronomical interest rates, much higher than the nonbank short-
term loans that come under such controversy, Kelly Edmiston, senior economist at the Federal Reserve
Bank of Kansas City, points out in his study published in that Fed branch's Economic Review, that the
"median interest rate" for bounced check fees
if they were measured as interest payments - would
be "well in excess of 4,000 percent, or up to 20 times that of payday loans"
4 "Does Credit Card Debt Harm Small Business?" Index Credit Cards, April 19, 2010
http://www.indexcreditcards.com/creditcardnews/does-creditcard-debt-harm-small-businesses/
''The Kauffman Firm Survey," Kaufman FoundatiDn, March 2008,

http://www ,ka uffm an, org/ up loa ded Fil es/kfs_08, pdf
6 Thomas A, Durkin, "The Impact of the Consumer Financial Protection Agency on Small Business, U,S, Chamber of
Com merce, p, 18, http://www.uschamber.com/sites/default/files/reports/090923cfpastudy,pdf
'Ibid
'John Berlau, "The 400 Percent Loan, the $36,000 Hotel Room, and the Unicorn," Competitive Enterprise
Institute, WebMemo No. 176, Feb. 6, 2012, http://ce;,org/sites/default/files/John%20BerlauThe%20400%20Percent%20Loan.pdf
9 Kelly D, Edmiston, "Could Restrictions on Payday Lending Hurt Consumers," Economic Review, First
Qu arte r 2011, http://www ,ka nsascityfed, org/p ublicat! econ rev/pdf/llq 1Ed miston.pdf.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00067
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.004
62
Now, I don't believe we should ban or put ceilings on overdraft fees or put any thicket of new
regulations on banks and credit unions. As I noted previously, CEI supports an all-of-the above strategy
for access to credit and promotes consumer choice and consumer responsibility with true disclosure.
But I do believe that some non-bank short-term loans - be they for weeks or for months
could be a
better alternative for many consumers than overdraft fees. In deciding whether to put restrictions on
credit, we need to look at what consumers would use as alternatives for emergency cash were the law
to deny them choices in legitimate credit.
The final benefit to H.R. 6139 is that as we expand the universe of small-loan options and providers,
America's financial system becomes that much less reliant on large financial institutions deemed by
some as "too big to fail." Former Federal Deposit Insurance Corporation Chairman William Isaac is
respected by both parties for his advice on reducing systemic risk through reforming accounting and
capital rules. Isaac now says in a written statement submitted forthe record of this hearing (a statement
I have also included as an Exhibit for this testimony), under the legislation, "these federally chartered
and regulated short-term lenders will be required to raise their capital and funding entirely from private
sector sources without the benefit of any federal guarantee." He notes that the safety and soundness
"record of non-bank short-term lenders over recent decades has been impressive in good times and
bad."
I'd like to end with the optimistic note that I believe this Congress can once again prove the media
wrong and pass a bipartisan piece of legislation that "liberates to stimulate" by lifting the regulatory
barrier sthat block access to credit for responsible consumers and entrepreneurs. Thank you again for
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00068
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.005
inviting me to testify, and I look forward to answering your questions.
63
Exhibit 1
STATEMENT of
WILLIAM M. ISAAC
Former Chairman, Federal Deposit Insurance Corporation,
July 24,2012
I commend the subcommittee for conducting this hearing on the important issue of access to credit for
cash-strapped consumers and small businesses. I wish I were able to participate in the hearing in person
and would appreciate my written statement being made part of the record.
I am former Chairman of the Federal Deposit Insurance Corporation; Senior Managing Director & Global
Head of Financial Institutions for FTI Consulting; and Chairman of Fifth Third Bancorp. The opinions I
express are my own and do not necessarily reflect the views of these organizations.
I appreciate Congressmen Luetkemeyer and Baca taking the time to fashion an innovative approach to
increasing the flow of small loans to individuals and businesses. As reported in the "findings" of their
bipartisan bill, studies by the FDIC and others "have shown that roughly half of all American families ...
are literally living paycheck-to-paycheck." I think we can all agree that we need more education in
financial literacy, and we need more stable sources of credit.
I believe the proposed Consumer Credit Access, Innovation, and Modernization Act's creation of
optional federal chartering for non-bank lenders is an innovative approach that could yield many
benefits. It's difficult for me to see a downside to the bill.
The legislation would create an optional federal charter for non-depository lenders at the Office of the
Comptroller of the Currency, which has chartered national banks for 150 years. The legislation instructs
the Comptroller to focus on the "true cost" of the loan product rather than the annual percentage rate
(APR) and facilitates the offering of short-term lending products best suited to the needs of borrowers,
beyond payday lending.
I have long been critical of interest-rate ceilings that restrict or effectively prohibit short-term personal
loans from banks and non-bank lenders. While the APR provides useful information to consumers when
comparison shopping for loans, it is inappropriate to use it to cap interest rates on short-term lending.
Hearing about a 390% APR for a payday loan, for example, is at first blush jarring. But after thinking
about it more carefully, one recognizes the value proposition. The APR on a payday loan is much lower
than the APR on a typical fee for a bounced check or for a late mortgage or credit card payment, or the
fee for getting your electricity turned back on after it has been cut off due to late payments. The loan
fee is definitely much less than the lost income when you can't get to work because you can't afford to
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00069
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.006
get your car repaired. These are typical of the choices facing customers who take out a short-term loan.
64
The plain truth is that tens of millions of people from all walks of life decide their best option is to do
business with non-bank, short-term lenders. The terms are very easy to understand - you borrow $200
and you pay back $230 two weeks later. Critics claim this amounts to predatory lending, a charge I don't
understand. The loans are unsecured and if you default, there is not much the lender can do except not
grant another loan. The lender cannot evict you from your house or take your car. It's not economic for
the lender to even file a collection suit.
The legislation addresses directly the criticism that payday loans are never really repaid - just renewed
over and over. I believe this criticism is blown out of proportion, particularly in comparison to other
types of borrowing. The high APRs and short maturities on payday loans make it impossible to keep the
rollover game going for very long, in contrast to credit card and other revolving debt.
In any event, to the extent rollover loans are a problem, it is largely because state regulatory barriers
effectively prohibit lenders from offering borrowers more suitable options, such as installment loans,
which most lenders would very much like to do. As John Berlau ofthe Competitive Enterprise Institute
noted in a recent paper, "In California, a nonbank lender can make a payday loan in the maximum
amount of $300 or an installment loan in the minimum of $2,500. This leaves a big gap in the middle."
The Luetkemeyer-Baca legislation will help bridge this gap by allowing safe, regulated and innovative
loans to flow across state Jines and benefit consumers and small businesses. It will do so without
exposing taxpayers to any risk, as these federally chartered and regulated, short-term lenders will be
required to raise their capital and funding entirely from private sector sources without the benefit of any
federal guarantee.
The financial record of non-bank short-term lenders over recent decades has been impressive in good
times and bad. Short-term lending is relatively risky, but the risks are ameliorated due to diversification
in the portfoliO, and the risks are priced into the fee structure. It is quite feasible to maintain high loan
loss reserves and strong capital against short-term loans and achieve good returns if the short-term
lender is an efficient operator.
Reducing unnecessary regulatory barriers will increase competition for bank and non-bank lenders and
will foster sustainable sources of credit for consumers and small businesses. This will in turn stimulate
economic growth and job creation. The Luetkemeyer-Baca bill appears to be an important step in the
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00070
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.007
right direction and deserves a fair hearing and serious consideration.
65
Prepared Statement of Frances C. Bishop, Haleyville, Alabama
On behalf of the National Pawnbrokers Association and the Alabama Pawnbrokers
Association
Committee 011 Financial Services

Subcommittee on Financial Institutions
Jnly 24, 2012
Chaimlan Capito, Ranking Member Maloney, and Honorable Members of the

Subcommittee, my name is Fran Bishop. I have owned my own pawnshop for 24 years and have
served the National Pawobrokers Association (NPA) as its president and as chair of its
government relations committee. I also have been actively involved with the Alabama
Pawnbrokers Association.
The NPA, the only nationwide pawn trade association, represents more than 1800
independent owners of pawn stores across the United States. By numbcr of stores and
percentage of the overall pawn market, our membership dwarfs the three publicly traded
companies in the pawn industry. Independent, family-owned pawn stores or small regional
chains represent approximately 78 per cent of the market for pawn transactions. None of the
publicly traded pawn companies are members of our Association. None have any authority to
speak for the Association or thc pawn industry as a whole. Our members serve roughly 30
million consumers across the United States every year. The NPA on ly represents pawnbrokers;
the Association takes no position on other non-depository providers' products.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00071
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.008
The NPA is strongly and unequivocally opposed to both H.R. 1909 and H.R. 6139. We
recognize that the sponsors of both bills were well-intentioned, but we see both bills as having
consequences far beyond those the sponsors intended, which we describe below in greater detail.
66
H.R. 1909 and H.R. 6139 qualify as among the most sweeping deregulations of financial
service providers ever introduced into Congress. Either biJl, if passed, would allow a small
number of mega providers to grab huge market shares and to be subject to relatively little or no
regulatory oversight at the federal or state levels. But most of us who operate independent,
family-owned, community-based providers will continue to be subject to the array of federal,
state and local laws and regulations that the industry suppolicrs of these two bills want to escape.
And being free of those levels of laws and regulations will save the big charter holders so much
money that they can price their products well below ours and keep their profits high. These bills
will place millions of middle-class consumers at the mercy of these large, remotely operating
companies and place thousands of family-owned, local businesses like mine at enormous
competitive disadvantage.
l. Industry Overview and Compliance Requirements: Pawnbrokers, the oldest providers of

consumer credit in the world, enjoy a long working relationship with the States. New York
enacted the first state law regulating the pawn industry a consumer protection law, I might add
in the 1890's. Many other stales enacted pawn consumer protection laws during World War I
and others since the explosion of consumer credit products occurred in lhe 1960's and 1970's.
Pawnbrokers arc among the most heavily regulated providers of consumer credit products
in the nation. We are regulated by local governments, as well as being supervised and examined
by the States. In most states, a single state agency issues our general business licenses. In all
states, law enforcement ageneies can inspect our records. State-level regulation of the pawn
industry allows the States to make laws that suit the needs of their own residents. Over the years,
many of the more populous States, such as New York, California, Michigan, Ohio, !l!inois, and
Massachusetts, have enacted lower permissible ceilings on the interest and other charges
pawnbrokers may charge. Some of the less populated States allow higher interest rates and
charges to enable pawnbrokers and other traditional State-licensed lenders to offer credit to their
residents. A few larger States allow among the highest interest rates in the nation. One thing we
have learned is that States enact laws tbat fit their residents' interests and that regulation of pawn
transactions are not "one-size-fits-all" propositions no matter how much anyone claims they arc.
This bill, however, effectively allows federal charter holders to "export" the interest rales and
charges from one state to the next, taking away from the States the power to decide what
packages of interest rates and charges make sense for that State's residents.
Pawnbrokers must comply with thirteen assOIied federal laws and regulations. The
majority of these are federal consumer credit protection laws, including laws enforced by federal
bank regulatory agencies, the Federal Trade Commission, the Department of Defense, and now
the Consumer Financial Protection Bureau (the CFPB). Other applicable laws and regulations
involve reporting of cash transactions to the Internal Revenue Service and compliance with the
anti-money laundering laws and anti-terrorism laws enforced by agencies within the Department
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00072
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.009
67
of the Treasury. Pawnhrokers are subject to the CFPB for enforcement and rule-making
purposes, but are not subject to the same examination and supervision authority tbat the CFPB
bas over payday and title lenders, mortgage originators, or student loan originators.
It's pretty clear to us that escaping the general jurisdiction of the CFPR, and particularly
tbat agency's powers to examine and supervise them and to promulgate regulations over their
products, is a major goal of industry supporters of!l.R. 1909 and H.R. 6139.
Freedom from the CFPB's grasp is not the only reason why certain large companies want
the protections that H.R. 1909 and H.R. 6139 offer them. They also want to escape from
restrictions being imposed on their products by the States that granted them their current
corporate charters and licenses to operate
whether those restrictions are imposed by State
legislatures or by the voters of the States in which they wish to operate unfettered. States
including North Carolina, Ohio, and Georgia have restricted or prohibited products that the
companies supporting H.R. 1909 and H.R. 6139 want to offer. Others States such as
Pennsylvania have insisted that companies seeking to do business with their residents get
licensed and operate under the tenns of those licenses. Citizens in Missouri will be voting in the
general election this fall on new limits on certain loan products (but not on pawn loans)
following a successful ballot drive by residents and prominent church groups in that State.
The NPA's independent, family-owned members stand ready to play the same role in the
consumer credit market that we have played for more than 120 years under state regulation and
since Christopher Columbus pawned Isabella of Spain's jewels to finance his search for the New
World, and the Vatican financed the kings in Europe. We're a vibrant group with the interests of
our local customers, employees, and local communities at heart.
Independent pawnbrokers are the nation's "safety net" lenders to individuals who do not
have credit cards or bank accounts. We help middle-class Americans get to work, buy trade
supplies, and we help business owners make payroll when their business customers do not pay
them on time. We help families of soldiers deployed, injured and killed abroad cope with the
emergency financial needs they have. Big providers located outside communities are not likely
to care as much or do as much for individual customers in need as we do, or to help out the local
church or police benevolent associations with charity campaigns.
H.R. 1909 and !l.R. 6139 are likely to wipe our businesses off the map and destroy the
locally provided credit and tens of thousands of jobs in communities like yours for the benefit of
a few large companies.
II. NPA's General Concerns about Il.R. 1909 and !l.R. 6139: As far as the NPA is concerned, the
overall credit market should continue to have both a wide an'ay of products from which
consumers can choose, and a wide array of providers. In other words, we believe that more
competition, not less, makes for a bettcr overall consumer credit market.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00073
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.010
68
However, both !-I.R. 1909 and !-I.R. 6139 would have the result in a relatively short
period of time, of reducing the number of providers in the overall market. Lessons from the past
tell us that fewer competitors mean higher prices for consumers and small businesses, not lower
prices. Anyone whose neighborhood lost a pharmacy, grocery store, or gas station knows that
prices rise when fewer competitors are in the local market.
Both bills make it sound as if non-depository consumer financial services providers are
not regulated sufficiently and thoroughly. We objected when banks tried to use this argument to
cause more attention to be paid to non-banks during the Dodd-Frank Act debate. We object now
that this same argument is being used to suggest that the Office of the Comptroller of the
Currency (OCC) will necessarily do a better job of regulating non-depository providers and
products than the states have been doing for decades.
A. Effect on State Consumer Protections: Consumers in our States enjoy consumer
protections that are enforced and the states also sec to it that we meet our obligations under
federal laws. The manner in which pawnbrokers and pawn loans are being regulated is working:
one rarely hears conswner complaints about pawn transactions. That old adage about "not fixing
what's not brokcn" comes to mind every time I hear or read about how state-licensed providers
need more federal supervision.
Moreover, the bills would leave as the primary enforcer of important consumer protection
laws and regulations the OCC, an agency that already has enormous responsibilities for the
safety and soundness of all national banks and for their compliance with federal consumer credit
protection laws. No matter how sincere the OCC's intentions are to exercise the important
supervisory roles Congress assigns to it and to perrorm the same level of supervision and
enforcement over new non-depository providers to whom the OCC grants federal charters, it is
unrealistic to expect that non-depository providers will or should compete for attention with the
banks on which other parts of the national and global economies depend.
Thus, enactment of either H.R. 1909 or H.R. 6139 virtually guarantees that nondepository chmier holders will get less attention from regulators and enforcers of federal
consumer credit protection laws than they have for the past 40 years. This is clearly what the
industries and industry members urging enactment want. Indeed, a careful reading of !-I.R. 6139
reveals that the GCC will have less power over products offered by non-depository charter
holders than it has over the deposifOlY providers in its jurisdiction, national banks andfederal
smlings associations.
B. Effect on Markets: These giant companies and certain individuals want to control the
market for consumer financial products for the millions of consumers who either do not have
bank accounts or who normally do not get bank loans for their short-term credit needs, persons
not only among the most eager to have credit opportunities and to build credit histories, but also
among the most vulnerable. The bills' supporters want to take the market shares that their
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00074
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.011
69
competitors havc by being allowed to slash their costs and thus under-cut our prices while
retaining their profits (or increasing them) to out-compete ns
with a federal charter and
complete freedom from the enforcement of laws the States have enacted providing the jnice for
their plans.
These giant providers want Congress to give them this extraordinarily un-level playing
field, and NPA's members hope you will have the good sense and respect for States' rights not to
give industry supporters of these bills this charter bonanza.
National banks have never been big players in the consumer credit market, except in their
roles as issuers of credit cards, and leading up to the 2008 recession, in their roles in housing
finance. Instead, local banks, credit unions, and state-licensed non-depository providers such as
pawnbrokers have been the bread-and-butter providers of consumer credit, and particularly of
installment loans and of short-term loans. Pawnbrokers are the major safety-net lenders to
middle-class Americans.
Ill. Specific Concerns about H.R. 1909 and H.R. 6139: Contrary to representations you may
have heard, H.R. 6139 is just as much about offering a small number of potential providers of
practically unlimited consumer credit products as is II.R. 1909. Both are go-anywhere, offeranything "perpetual hall pass" type of legislation. If anything, H.R. 6139 gives more authority to
providers than H.R. 1909 does.
A. Specific Concerns about n.R. 1909, which:
'allows non-bank lenders to make any type of loan, consumer or commercial, with no dollar
limits in any location or through any medium of their choice with virtually no regulation of the
products or providers by any federal or state regulator;
limits ownership of non-bank charter holders to certain giant providers in the non-bank and
bank sectors, and excludes all but the biggest players from holding charters;
allows charter holders to avoid making the Annual Percentage Rate (APR) disclosure required
by the federal Truth in Lending Act ('rILA) since 1969, but keeps the requirement in place for
other bank and non-bank providers;
'allows charter holders to make loans larger than state law permits for lenders cutTcntly licensed
under state law;
preempts all State laws and State law-writing authority, as well as State enforcement authority.
with a preemption standard that is much broader than Dodd-frank's prcemption standard;
exempts federal charter holders from all State and local licensing fees, thus depriving them of
revenues and transferring for these giant providers those state and local revenues to the OCC, but
leaves their competitors subject to fees;
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00075
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.012
70
overrides State legislation that bans payday loans as an exercise of the "police powers" thatlhe
States expressly reserved when they signed the United States Constitution, or that limits the
temlS on which consumer products may be offered including frequency and conditions or rate
caps, but leaves all such restrictions in place for all other providers;
eliminates all State powers to enforce laws. such as State fair lending laws. depriving States of
their "police powers" over entities who market and provide products in their States; and,
exempts charter holders from the CFPB's jurisdiction for all purposes, but leaves currcnt
competitors under the CFPB' s jurisdiction for all purposes.
B. Specific Concerns about H.ll.. 6139, which:
still limits charter eligibility to "qualified non depository creditors" and gives the
discretion on approving charters for applicants;
oce
-requires only an initial, three-year plan to operate "its primary business activity" as serving the
needs of underserved consumers and small businesses. This "three-year plan period" is the only
period in which the applicant must explain how its products will be affordable;
exempts all products not part of the suite of products for "underserved consumers and small
businesscs" from regulation and enforcement by the OCC as well as from regulation and
enforcement by the States. Products outside the suites will not be subject to the supervision or
regulation of the CFPB or other federal or State agencies;
allows persons in joint ventures or affiliated with charter holders to enjoy benefits comparable
to those H.R. 6139 would give chmiel' holders, thus extending the bill's huge umbrella powers to
providers not under thc supervision of the oee or eFPB, or, effectively, of the States without
even the opPOliunity for a regulatory agency to approve their participation or to supervise them;
and
gives charter holders additional authority to engage in activities that are "incidental, implied, or
reasonably necessary" to carry out the express powers granted in the bill. The terms "incidental,
implied, or reasonably necessary" are common terms in federal statutes and case law interpreting
the National Bank Act and have bcen, particularly since 1960, the sources of greatly cxpanded
powers being exercised by national banks. These boot-strap adjcctives, if retained in the tinal
bill, would allow charter holders a wider expanse to engage in bank-like activities, with the
exceptions of taking deposits or making commercial loans in excess of $25,000 small business
loans, than even this broad bill appears to allow. These additional powers also suggest that the
bill's real intent is to create unlimited powers beyond products for underserved consumers and
small businesses without review by appropriate Federal or State regulators or and reference to
State laws that currently regulate products in the general consumer loan marketplace.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00076
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.013
71
c.
n.R. 6139 does not:
require that "more affordable" consumer credit products be offered to consumers - indeed.
because no restrictions or "rate caps" can he placed on credit products, there is no guarantee that
consumers will realize any savings over the costs of products currently being offered by statelicensed competitors of the bill's industry supporters. The bill's repeated references to products
that are "commercially viable" make the lip service to affordable products look even weaker.
Nothing in H.R. 6139 actually requires "afTordable" terms fe)r credit products;
require many protections for underserved consumers. The exclusive protections described
include (a) a once-annual oppOliunity for an underserved consumer who is unable to repay an
extension of credit with a term of less than 120 days to obtain a no-cost extended repayment
plan, (b) products or services with features to facilitate personal savings or to assist in enhancing
credit records, but only "to the extent reasonably possible" which means no requirement at ali,
and (c) a ban on consumer loans of 30 days or less or extensions of credit unless it has a
"reasonable basis" for believing the consumer can repay the loan;
restrict the ability of payday or other lenders whose products have been restricted by the States
to offer products similar to payday loans so long as they arc of at least 31 days' duration. Just
call these stretch payday loans;
merely "replace" the APR disclosure required by the TILA since 1969. Rather, H.R. 6139
exempts all consumer credit extensions with terms of one year or less from all of Subpart A of
Subchapter I of TILA, among TILA's most valuable requirements. The result is the loss of
useful credit shopping tools to the class of consumers who most needs to be educated about and
engage in comparison shopping for credit;
do much to help consumers who arc underserved enhance their credit standing;
allow "only OCC approved loans" to be olTered. The bill's "deeming approved" provisions, its
high hurdle for OCC disapproval of products, and the 45-day limit on the OCC's oppOliunity to
disapprove products means that most products will come to the market just as the provider wants
them to be and without explicit "approval" from the acc. The acc can disapprove products
only based on a "fair and reasonable determination of the facts and circumstances regarding a
proposed financial product or service" and must conclude that "offering the proposed product or
service will significantly harm the interests of underserved consumers or small businesses."
Thus, you should expect that OCC disapproval will be extremely rare, and that is what H.R.
6 I 39's industry suppOliers hope will be the result of these requirements.
require the use of model forms or any other standardized replacement for TILA's model forms
or standardized APR credit cost disclosures. Creditors will be free, unless directed otherwise by
OCC regulations, to make "true cost disclosures" without restriction on how they present the
infonnation;
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00077
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.014
72
o allows the oee to take action against providers of products "deemed approved" only to ensure
that products will not significantly harm underserved consumers or small businesses;
give the OCC any authority to regulate any other product offered by thc chartcr holder if the
product is not olTered for the underserved or small business markcts. Thus. H .R. 6139 provides
no regulatory power whatsoever by any federal entity. and a complete escape from regulation
and licensing by every unit of state government for all products other than those specifically
designed for underserved consumers and small businesses. This bill would create. tor the
majority of products that charter holders may seck to offer, a small group of unregulated credit
providers;
ogrant any approval, supervision, or enforcement powers to the CFPB or any other federal or
state regulator of products offered by charter holders, contrary to representations made by
industry supporters of H.R. 6139. This appears to include insured depository institutions and
bank and thrift holding companies, which are currently subject to jurisdiction of the FDIC or the
Board of Governors ofthe Federal Reserve System (Board);
provide any protection for consumers against offshore lenders or lenders based on or affiliated
with sovereign tribes in the United States. The bill may help charters holders compete against
these two classes of lenders, but it will not stop consumers who choose to use those lenders from
doing so. It grants no new federal enforcement authority to thwart offshore lenders operating in
the United States. and indeed weakens the States' ability to act to prevcnt remote offshore, tribal,
or online lenders from taking advantage of consumers;
provide the CFPB authority to oversee the activities of charter holders. H.R. 6139 expressly
grants exclusive "examination and supervision" authority over charter holders and the
responsibility to "monitor" charter holders' compliance with the charter act and "all other
applicable laws and regulations" enumerated in Dodd-Frank's section 1002(12) to the OCC.
H.R. 6139 gives to the OCC exclusive power to prescribe regulations to govern products offered
by charter holders
with the very limited powers to disapprove or condition approval of
products noted above;
* give the oce power to regulate "unfair, deceptive, or abusive powers" that the CFPB has and
the FTC also has; and
o provide any the eFPB authority to enforce federal consumer financial protection laws (as
enumerated in section 1002(12) of the Consumer Financial Protection Act of 2010, 12 U.S.C.
5481(12) against charter holders. The only other entity with enforcement powers under H.R.
6139 will be the attorneys general of the States (or the holders of equivalent State powers). State
AG powers will be limited by H.R. 6139's "consultation" requirements except in "emergency"
cases and the oee will have power to replace the State AG as plaintiff and remove the action to
federal courts.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00078
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.015
73
IV. Conclnsion: H.R. 6139 is H.R. 1909 in the Emperor's New Clothes. Both are sweeping
changes in the diversified regulatory landscape for consumer financial products and services that
exists today. Both are huge grahs of regulatory authority from the States without a national
emergency or comparable national interest as justification. Both bills create a new bureaucracy
inside the OCe. H.R. 6139 just grants less authority to the OCe. and more to the companies that
support it and plan to become chartcr holdcrs.
Both bills will permit chartcr holders to operate at vastly reduced costs by eliminating
most of their current compliance obligations at the State and local levels, granting broad
preemption powers over State and Federal efforLs to regulate their activities, and allow them in
the not distant future to impose oligopoly powers in a vastly less-populated market. Providers
with such powers eventually will be able to impose significant and permanent price increases on
the consumers and small businesses they claim need their help to get credit once they undercut
their competitors (that includes my business) and drive us from the marketplace. Both bills will
allow elite companies and individuals to take economic benefit out of our communities and shift
it to some other State.
On behalf of the NP A and the tens of millions of consumers who arc our customers,
consumers we know and work with when they need credit, and the thousands of individuals our
members employ in local c.ommunities like yours, we urge subcommittee members - and the
members of the Committee as a whole not to vote for H.R. 1909 or H.R. 6139. I mentioned
my impression that these bills are a lot like the Emperor's New Clothes. But, down in northem
Alabama, my customers would more likely say that these bills are like "pigs in a poke." And
whichever of these analogies one uses - that pretty much sums up why the NPA's membership
opposes these bills.
Thank you for this opportunity to share the views of the National Pawnbrokers
Association, which proudly represents independent, family-owned providers of pawn loans and
tens of millions of consumers who use our services every year. We are proud contributors to the
communities and consumers we serve. I respectfully request that this prepared statement be made
part of the formal record for this hearing.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00079
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.016
74
Testimony of Kenneth W. Edwards
Vice President of Federal Affairs, Center for Responsible Lending
Before the House of Representatives Committee on Financial Services
Subcommittee on Financial Institutions and Consumer Credit
Hearing: Examining Consumer Credit Access Concerns,
New Products and Federal Regulations
July 24, 2012
Chainnan Capito, Ranking Member Maloney, and Members of the Subcommittee:
Thank you for inviting me to testify on better understanding the regulatory regime for nondepository creditors, and my views on Tl.R. 6139, the "Consumer Credit Access, Innovation, and
Modernization Act."
I currently serve as Vice President of Federal Affairs for the Center for Responsible Lending, a
nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership
and family wealth, by working to eliminate abusive financial practices. CRL is an affiliate of
Self-Help, a nonprofit community development financial institution with a 30-year-track record
of serving low-income, rural, women-headed, and minority families. Self-Help manages a total
of $950 million in assets for approximately 90,000 lamilies in North Carolina and California.
Tn my testimony today, Twould like to emphasize the following three points:
H.R. 6139 would circumvent the carefully contemplated supervisory, enforcement,
and rulemaking authority of the Consumer Financial Protection Bureau (CFPB or
Bureau) over certain non-depository financial institntions. The Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank) consolidated consumer
protection statues and authorities that had previously been scattered among many
different agencies. Dodd-Frank also significantly augmented federal consumer protection
jurisdiction over non-depository institutions----such as mortgage services companies,
private student lenders, and payday lenders-"-"and sought to level the playing field by
earefully vesting the CFPB with authority over these non-bank entities. In particular,
Congress identified payday lenders as important non-depository creditors to be regulated
under the Bureau's supervisory authority.
H.R. 6139 would expressly allow non-depositories to evade 230 years' worth of state
consumer protection laws, licensing, and supervision that are essential to protecting
vulnerable consumers from abusive financial practices. Throughout the previous
decade, the OCC has used national charters as a basis to preempt state consumer
protection measures to the detriment of many borrowers. By obtaining a federal charter,
qualifying non-bank creditors could evade state consumer protections, while availing
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00080
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.017
75
themselves of weaker standards that would be used in the federal chartering process. The
bill would also permit federal chartcr holders to ignore state usury limits or rate caps on
small loans that have been in existence for decades.
H.R. 6139 would roll back important federal credit protections for consumers. The
bill would undermine more than 40 years of established and accepted consumer
protections under the Truth in Lending Act (rILA) by exempting lenders from annual
percentage rate (APR) disclosure obligations on loans. Under the bill, for loans of one
year or less in duration, credit companies would be required simply to disclose the cost of
a loan as a dollar amount and as a percentage of the principal amount of the loan. This
would make it much more difficult for borrowers to compare the true cost of different
products.
1. H.R. 6139 would circumvent the CFPB's carefully contemplated supervisory,

enforcement, and rulemaking anthority uver certain lion-depository financial
institutions.
The CFPB is the primary federal regulator with explicit supervisory, enforcement and
rulemaking authority over large depository institutions and certain non-depository entities,
including payday lenders. Title X o[ Dodd-Frank tasks the Bureau with consumer protection
through rule writing, supervision, and enforcement to ensure thai markets allow borrowers to
gain access to-and choice among-financial products and services that are fair, transparcnt, and
competitive.
Injust one year, the CFPB has begun to create sensible rules of the road for financial markets
through a balanced and level regulatory playing field for market participants. Without such
evenhandedness, consumers would be exposed to a financial marketplace rife with the very kinds
of abuses that led to the financial crisis. The CFPB's supervisory purview over non-depository
entities is prudently designed to improve the quality of services in this sector and enforce federal
consumer financial law.
H.R. 6139 poses a direct threat to the CFPB's ability to protect consumers. By enabling nonbank lenders to seek a federal charter under the oce, the bill would hamper the Bureau's
oversight of some of the riskiest and costliest financial service providers in the marketplace. For
instance, under the bill, the oce has the explicit authority to (I) review and approve financial
products that charter holders plan to offer to consumers and (2) prescribe regulations containing
standards regarding the product's approval. The bill directly conflicts with Section 1031 of the
Dodd-Frank Act, which grants the CFPB express authority to prescribe rules to prevent creditors
from engaging in unfair, deceptive, or abusive acts or practices (UDAAP). Under, H.R. 6139
financial products might be approved by the OCC could also violate Dodd-Frank's prohibition
against UDAAP. Such a scenario would present both a confusing and an incongruent regulatory
framework-resulting in both agencies butting heads in federal court, after protracted and
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00081
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.018
76
intense inter-agency litigation. In addition, such a structure would create unleveled playing field
between non-depository consumer credit lenders who are chartered by the OCC and those
chartered at the state level. One of the key goals in establishing the CFPB was to create uniform
standards that apply to all consumer tlnance providers, irrespective of charter. H.R. 6139 would
undermine that.
In addition, H.R. 6139'$ procedure for approving products tilts in favor of qualified chartered
holders, with the OCC required to presume that a product was safe, unless it could demonstrate
that the product would "significantly harm" borrowers. The OCC would have only 45 days to
make such a determination.
H.R. 6139 would also require the oce to conduct examinations and supervisory activities for its
non-depository charter holders. This is, however, is not thc oec's primary mission, which is to
safeguard depository tlnancial institutions, not protect consumers from deceptive or abusive
lending practices. Indeed, this limited mission focus of the OCC was a reason why Congress
created the CFPB in Dodd-Frank.
As we saw in the mortgage crisis, the oce and other federal regulators were not effective
concerning consumer protection. We also saw that, in the long-term, measures that could have
been put in place to protect consumers (such as restrictions on paying originators more for
placing borrowers in costlier and more dangerous loans) would also have been better for lenders
and for the larger economy. The eFPB was created largely because federal consumer protection
functions were widely dispersed among multiple federal regulators that were charged with
protecting institutional safety and soundness. This meant that regulators were not able to
adequately protect consumers, or even properly regulate the industries they oversaw with a longterm outlook on safety and soundness.
While the CFPB's explicit mission is consumer protection, it is important to note that this focus
is not inconsistent with the safety and soundness mission that other regulators have. Indeed,
consumer protection and safety and soundness arc flip sides of the same coin. CRL's recent
research that examincs marketing and pricing practices prevalent in the credit card industry
before implementation of the CARD Act-ancl the conncction between these practices and
company performance during the recent economic downturn--illustratcs that strategies of
maximizing short-tcnn revenue by using unfair or deceptive lending practices led to increased
risk and lower profits during the downturn. undermining a bank's safety and soundness. l
Common-sense curbs on unfair lending practices increase market transparency and bolsters
firms' tlnancial strength. Accordingly, this benefits customers, investors, shareholders, and
ultimately taxpayers.
Joshua M. Frank, Predatory Credit Card Lending: Unsafe, Unsound for Consumers and Companies," Center for
Responsible Lending, May 2012, available at: http://www.responsiblelending.org/credit-cards/researchanalysis/Unsafe-Unsound-Report-May-2012.pdf
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00082
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.019
77
H.R. 6139 also would establish a two-tiered financial regulatory system that would expose some
households to risky. high-cost financial products offered by non-depository lenders that
undennine their financial well-being. and could drive them out of the banking system. while
consumers with access to mainstream banking services would enjoy the full protections of the
CFPB. Both data and history tell us that communities of color. low-income and women-headed
households are those who would disproportionately be targeted by these abusive tinancial
practices. H.R. 6139 would ham1. not help. the un- and under-banked, pushing them further to
the economic margins, as discussed in further detail below.
2. H.R. 6139 would expressly allow DOD-depositories to evade 230 years' worth of state
CODSDmer protectioD laws, liceDsiDg, aDd sDpervisioD that are essential to protectiDg
vulDerable consumers from abusive financial practices.
Under H.R. 6139. non-depository chmier holders would be able to offer financial product terms
that some states have either expressly prohibited or heavily regulated--for instance, high cost
payday loans. Marketed as short-term relief for a cash crunch, payday loans carry annual interest
rates of 400 percent and are designed to catch working people in a long-term-debt trap.2 The
structure (including high fees, short-term due date, single balloon payment. and collateral of
access to a borrower's checking account) ensure that the vast majority of borrowers cannot pay
off the loan when it is due without leaving a large gap in their budget. As a result, they are
forced to take out new loans after paying the first one back. In fact, some payday lenders even
offer a "free" no-fee loan to lure customers in, knowing that borrowers are so cash-strapped that
most cannot afford to repay the principal in two weeks and will have to renew multiple timespaying multiple fees--in order to pay back the original loan. A 2009 CRL study found that
typical payday borrowers remain in debt for much of the year, and the overall duration and
amount of the debt increases over time 3 Well over 90 percent of payday loans involve
borrowers who had another loan that same month----and the debt trap of 400 percent interest
drives 40 percent of borrowers to eventually default
States are the traditional regulator of most small loan products, including payday loans, offered
in the U.S. In tact. state limitations on interest rates have existed for over 200 years. However,
since the mid-I 990s, payday lenders affirmatively sought and were often granted special
authority to charge over 300 percent APR on their loans. Since 2005. a counter-trend developed
and no new state has granted payday lenders and other "short-tenn" lenders their needed
exemption from traditional small loan laws and other regulations. [n fact, several states that had
once allowed the tenns associated with a payday loan (triple-digit annual interest rates, shortCenter for Responsible Lending, "Payday Loans Put Families in the Red," Research Brief, February 2009, available
at http://www.responsiblelending.org/payday-lending!research-analysis/payday-Ioans-put-families-in-thered.htm!.
, Uriah King and Leslie Parrish, "Payday Loans, Inc.: Short on Credit, Long on Debt," Center for Responsible Lending,
March 2011, available at http://www.responsiblelending.org/payday-lending/research-analysis/payday-Ioaninc. pdf.
2
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00083
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.020
78
term balloon payments) have since reversed their decision. These states join others that have
never granted payday lenders authorizing legislation 4 In addition, three states (Ohio, Arizona,
and Montana) have, in recent years, approved ballot initiatives limiting interest rates on payday
loans. All these initiatives passed by overwhelming margins.
HR 6139 sets out some limited standards for consumer credit authorized under the bill. Similar
provisions, however, have been circumvented by lenders who structure their financial product so
as to escape the statutory protections. Payday lenders have attempted to escape these consumer
protections. For example, payday lenders have attempted to evade similar provisions by offering
loans one day longer than the minimum term, structuring loans as open-end loans and taking fake
liens on cars in order to evade limits while still putting borrowers in debt-trap loans.
And H.R. 6139 would also sanction online lending for charter holders by explicitly prohibiting
any federal or state restrictions for internet lending. The bill also authorizes "rent-a-chartcr"
arrangements, whereby charter companies can pass on their preemption to any affiliates and even
third parties.
Despite the harmful impacts of payday lending and states' efforts to rein in the financial abuses
associated with this form of small-dollar credit, H.R. 6139 would pennit credit companies to
circumvent state laws and would prohibit the federal financial consumer watchdog-the CFPBfrom acting to protect borrowers from harmful products. By obtaining a federal charter, nondepositories could exploit strong state and federal regulation in favor of weaker standards used in
the OCe's chal1ering and oversight process.
3. H.R. 6139 would roll back important federal credit protections for consumers.
Since 1969, TILA has required creditors to disclose finance charges and APRs before consumers
sign a loan, as a baseline credit-cost comparison measure. Payday loans, for instance, are subject
to TILA's credit disclosure requirements. As a result ofT1LA's disclosure obligation, consumers
are afforded an accurate way to gauge true lending costs across products. H.R. 6139 upsets this
longstanding federal consumer protection by exempting credit companies from TILA's APR
disclosure to all lenders for loans of one year or less. For instance, take two Joans--~lIle twoweeks in duration, with 10 new renewal lees-as compared to another loan, 20 weeks in
duration, with only one fee. Both loans could be advertised as charging 10 percent fees, though
the two-week loan would be far more expensive for consumers. This would result in a
significant market-wide roll back of federal credit law.
Conclusion
H.R. 6139 would directly harm vulnerable borrowers, particularly the underserved, and should
be opposed. Indeed this legislation offers nothing beneficial for consumers; on the contrary, it
Other jurisdictions include New York, New Jersey, Connecticut, Maine, Pennsylv.,mia, Georgia, Massachusetts,
West Virginia, Vermont, and Maryland.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00084
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.021
79
would lead to direct consumer harm-and its passage would set a precedent for many other
companies to also seek to be excluded trom the nation's consumer protection watchdog. As a
result, we urge you to actively oppose the legislation.
Thank you again for the opportunity to testify, and I look forward to answering your questions.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00085
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.022
80
U.S. HOllse Subcommittee on Financial Institutions and Consumer Credit Hearing on:
"Examining Consumer Credit Access, Concerns, New Products and Federal Regulations"
July 24, 2012
By: G. Michael Flores, CEO
Bretton Woods, Inc.
Good morning. I'd like to thank the chairman and members of the subcommittee j()r the opportunity to
testify today on a topic of growing concern to many in this room and one that I have followed closely
over the past four years. My name is Michael Flores and I am CEO of Bretton Woods, Inc., a
management advisory firm specializing in financial institutions including banks, credit unions and
alternative financial services providers. With more than 30 years of experience, I have witnessed the
evolution in the financial services marketplace. In 2008, this country woke to the worse economic crisis
since the Great Depression. Four years later, I believe we have reached a decision point in how to deal
with the credit needs of tile 60+ million of Americans marginalized by the traditional banking model.
Based on my most recent study, "Serving Consumers' Needs li,r Loans in the 21 st Century," I would
argue that consumers, notably those in the low- to-moderate-income range, would stand to benefit irom a
new financial paradigm that recognizes the potential of alternative financial services providers. Many,
but certainly not all of these consumers arc part of the 60+ million Americans who are either unbanked or
underbanked and who present a particularly complex challenge. In addition, there is a growing class of
debanked or moderate- to-middle-income consumers who have chosen to leave traditional banking
because of increased fees or because they need an unsecured personal loan, a product no longer offered by
most traditional banks.
Access to eredit has been an ongoing problem that has largely gotten worse with time. Difficulties for
unbanked and undcrbanked consumers to obtain smaller-dollar loans have been the subject of increasing
debate, including in a number of congressional hearings. But it's not just about Iow- to-moderate-income
consumers because the fact is bank customers, many with what you and I would consider healthy bank
accounts, are coming up short as well.
Since the 1980's, banks have used credit card lines, home equity lines and overdrafts to provide consumer
credit. These are now less viable due to the poor economy and increased regulations. Overall, the
community banks' focus on consumer lending has declined signincantly since 1985 according to the
FDIC, and during that period, unsecured installment loans all but disappeared from bank product suites
due to profitability, risk and regulatory concerns. 1 Today, loans of under $5,000 are all but nonexistent
and with good reason. Given their legacy cost structure and slow adoption of new technologies, banks
aren't capable of making loans of under $5,000 profitably and so they don't. .
New federal regulations have played a role in adding to the burden of maintaining growth or at the least,
stability and as a result, banks are examining their customer base. As my study details, the traditional
banking business model relies on scale to be profitable. According to JPMorgan Chase, about 70 percent
of customers with less than $ 100,000 in deposits and investments will be unprofitable following
VerDate Nov 24 2008
"Community Banking by the Numbers," FDIC Community Banking Research Project, Feb. 16,2012
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00086
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.023
81
regulations that cap lenders' fees.' Given the level ofinveslment required to succeed in the 21" Century,
it is only rational that banks target the most profitable customer segments. The potential fall out is
significant and will likely add to a further retraction ill the credit market. Limiting consumer and small
business credit has a detrimental impact on local economics.
Consumer fimmcial services are clearly at a crossroad and I believe that a new financial regulatory
structure is warranted. The answer points to the capabilities of alternative financial services providers.
Many have invested in more efficient and cost effective technology, but costs associated with regulatory
variations in 50 states naturally inhihit their ability to otTer a range of standard products particularly in the
$750 to $5,000 longer-tenn loan range. Differing states' regulations deny altemative financial services
providers the ability to achieve scale thereby reducing costs now associated with operating in all 50 states.
Studies of the impact of restrictive regulations in other industries, most particularly the lack of federal
preemption, repeatedly show these regulations limit options and increase costs to consumers. There is
room for both federal and state approved lenders as is the model for state and national chartered banks.
I would further argue that the lack of a standard product nationally, in and of itself, creates "disparate
impact" on consumers. That is, nothing more than a state line can cause consumers to have to meet their
specific credit needs with less than optimal and more expensive altematives.
I understand and appreciate the impact of regulations on the financial services industry, and while not a
policymaker, I close by suggesting that the simplest way to expand access to credit is to bring all
altemative financial services providers under the tent offederal regulatory licensing and oversight.
My thanks to the chairman and the subcommittee for your time and I would be happy to answer
questions. I am submitting my study for the record.
VerDate Nov 24 2008
"JPMorgan Sees Clients with Less Than $100,000 Unprofitable," Laura Marcinek, Bloomberg, Feb. 28, 2012
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00087
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.024
82
Serving Consumers' Needs for Loans

in the 21st Century
June, 2012
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00088
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.025
Copyright, 2012 by Bretton Woods, Inc. All RIGHTS RESERVED. Any use oftext, graphics, and analyses
materials, including reproduction, modification, distribution or republication, without the prior written
consent of Bretton Woods/ Inc" is strictly prohibited. AI! references are used by permission by the authors.
83
SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST C
Table of Contents
Contents
About Bretton Woods, Inc..
................. 3
About the Author ..
., 3
Executive Summary,,,
.............................................................
State of legacy Banking..
.... ,9
Trends in Unsecured Consumer Installment Credit..
............................ " ... 10
Types of Available Consumer Credit..
. .................... "" ............ " ........ 12
FDIC Small-Dollar loan Program..
...................................................................... 13
Consumer loan Activity..
. ............................................. 14
Relationship of Consumer Credit to Economic Growth ..........................
.....................................................
15
........................ 16
Sizing the Market ..
...... 16
Underbanked Individuals ..
Financial Services Ufe Cycle ..
.................................................................... 18
Alternative Financial Services ...
.................................................................................................... 20
............................................................................. 23
Role of Technology ...

The Future...
. ......................................................................................................................... 26
Exhibit 1- AFS Regulators...

Small Loans..
.......... 27
..................................................................................................... 27
Payday loans... .
......
.................................................................
PO 00000
Frm 00089
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.026
. .............................................................. 32
Exhibit 11- Minimum Loan Calculator ..
Jkt 076120
28
.. ................................. 30
Check Cashing..
16:07 Mar 28, 2013
. ............... 5
Consumer Credit ". .
VerDate Nov 24 2008
"n
84
SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST CEN
About Bretton Woods, Inc.

Bretton Woods, Inc. is a management advisory firm specializing in financial institutions. Since 1988, Bretton
Woods, Inc. has provided
value~added
services to its clients by applying business, technology, payments
and earnings improvement strategies.
The firm has worked with clients on payment strategies, unbanked and underbanked issues and trends
from cash and checks to card and electronic transactions. The work with insufficient funds and overdraft
fees in banks and credit unions includes credit advances on debit cards and other alternative financial
services offerings.
The firm continues to work with commercial banks in re-engineering efforts to attain profitability in today's
regulatory environment.
About the Author

G. Michael Flores, CEO of Bretton Woods, has more than 30 years of financial institution experience
through his employment in banking as well as consulting. Flores' consulting work focuses on the areas of
strategic planning, fee income strategies, payment systems, process improvement through enabling
technologies and alternative financial services.
Flores has testified before House and Senate sub-committees on underbanked issues raised in white papers
he authored on alternative financial services, spoken to industry groups and authored several articles for
industry publications. He has been a faculty member with the Pacific Coast Banking School in Seattle,
Washington and the Graduate School of Banking in Madison, Wisconsin where he taught Technology's Role
in Community Banking curriculum for bankers in the graduate school.
Flores received a BBA in Accounting and Management from the University of Notre Dame in 1973 and in
1974 attended the Commercial Lending School at Georgia State University. He is a Certified Mediator with
the Center for Dispute Resolution} Boulder, Colorado and also with the American Arbitration Association in
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00090
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.027
Atlanta, Georgia.
85
SERVING CONSUMERS' NEEDS F
Executive Summary
Bretton Woods, Inc. has been advising clients and researching payments and small dollar loan alternatives
since 1999. The residual impact of the 2008 economic crisis and the ensuing legislative response have
resulted in a financial services market unable to adequately meet the credit needs of an increasing number
of Americans. An estimated 73 million low- to-moderate-income consumers are either unbanked Of they
are underbanked, defined as having a checking or savings account but relying on alternative financial
services such as payday loans, rent-to-own agreements or pawn, Less well understood is a growing class of
"debanked" or moderate- to-middle-income consumers who have chosen to leave traditional banking
because of increased checking account fees or they need an unsecured personal loan, a product no longer
offered by most traditional banking institutions. Together, the unbanked, underbanked and debanked
constitute an enormous challenge for regulators and the financial services industry moving forward.
This report looks at the historical perspective of the traditional banking system, explores the credit market
including trends, options and providers and details the relationship of consumer credit to economic growth.
A comprehensive examination confirms a void in current banking and alternative financial services, in
particular for unsecured installment loans from $750 to $5,000, and concludes that there is a demonstrated
need for a more efficient and innovative financial system.
Key Findings
Consumer loans under $5,000 are unprofitable under the traditional banking model and as a
result. the credit needs of low- to-moderate-income individuals and small businesses are no
longer fulfilled by most community banks and credit unions. Impediments include the industry's
legacy cost structure, reliance on brick and mortar service delivery outlets and slow adoption of
new technologies embraced by younger consumers.
Some alternative financial services providers have built more effident and cost effective
technology, but typically offer only low-dollar products which are limited in availability due to
differing states' regulations. Impediments include inconsistent product offerings among states,
elimination of certain products based on state law, and increased compliance costs for companies
operating in multiple states.
A new banking model for low- to-moderate~income consumers must be built to better serve this
community which has been marginalized by traditional banks_ While alternative financial services
providers may serve as a foundation for a new consumer banking model, the myriad of state
regulations inhibit the introduction of a standard product. Studies of the impact of restrictive
regulations, including the lack of federal preemption, repeatedly show these regulations limit
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00091
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.028
options and increase costs to consumers.
86
SERVING CONSUMERS' NEEDS FOR LOANS IN TilE
State ofLegacy Banking

Throughout the history of mankind, paying for goods and services has evolved from barter in various forms
to the minting of coins and the production of currency to digitized money.
The advent of banks as a financial intermediary between savers and borrowers has also evolved from the
stately marbled edifjces to a more self-service model with ATM's, debit and credit cards and mobile
banking.
Traditional banks are maintaining all ofthese service delivery elements at a significant cost. Addingto
these costs are the additional regulatory burdens that considerably hamper community banks, those banks
under $1 billion of assets, There are 6,290 commercia! banks under $1 bi!lion as of December 31, 20111.
They represent the following:
20% of interest income
93% of all banks

17% of all assets
21% of all bank employees
20% of all loans
19% of total deposits
28%
14%
18%
13%
of interest expense
of deposit service charges
of premises costs
of net operating income
FDIC data from December 31,2011 indicate that banks under $1 billion of assets are much less efficient
than larger banks. The efficiency ratio (noninterest expense, less the amortization expense of intangible
assets, as a percent of the sum of net interest income and noninterest income) for banks over $1 billion is
60.26% versus 71.12% for banks between $100 million and $1 billion and 78.11% for banks under $100
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00092
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.029
million. In essence, it costs smaller banks more to generate a dollar of revenue.
87
SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST CENTURY
The following chart indicates the elements of profitability for these banks based on December 31,2011
FDIC data.
429%
0.67%
2.01%
3.54%
0.87%
0.90%
1.28%
8.06%
2.91%
61.19%'
B.48
63.90%
11.12%
4,88%
0.95%
1.12%
3.97%
0.54%
0.59%
0.71%
5.03%
0.22%
78.11%
3.47
95.7{J%
11.59%
0.97%
3.43%
0.57%
0.61%
0.79%
5.91%
2.43%
70.12%
4.06
58.ge%
10.58%
These community banks afe at a dear disadvantage with higher interest expense, !ower service charges and
lower operating income than the 500+ banks over $1 billion. A dear indicator that larger banks benefit
from scale is the amount of assets ($ million) supported by employees. For banks over $1 blllion, one
employee supports almost $7 million of assets versus $4 million of assets per employee for banks between
$100 mi!!ion and $1 billion, and $3.5 million of as.~ets per employee for banks under $100 million.
The disparity is even more profound when you consider that the top 50 banks represent .65% of all banks
but control 65% of al! deposits. Large banks were, on average, 12 times larger than community banks in
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00093
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.030
1985. The difference has grown to 64 times in 2010.
88
SERVING CONSUMERS' NEEDS FOR LOANS IN THE" ,e'rr"'W","DV
BearingPoint produced a white paper 'on "ARE YOU TRANSFORMING OR JUST TRANSACTING? THE MODEL
FOR THE 21ST CENTURY RETAIL BANK". The following table highlights the changes banks must pursue to
survive:
21ST CUtTUR'(
CUSTOMER
SEGMENTATION
CHANNEl..
5fR\HCf:
SJlJH
~
n-{JOuct hC'J:~ !O::!k:>;. ~:lm~ig~ k, NiI('nh
~ 1Jn,;oord1m1~ ~r>th~""m>!s
" Open !oep bet~r:. IT"~~~'9 llnd",.~
ltbW'Iy t" ,~,.;r;dl1~f.>-;'mp pmdoct with I1:!pid tinoo"tH\'lllrk!'t

for
(OMPUMfCEJ'
~ ->legcli!!t:iurt~cijk
RISK
1I~"
pn:xiiurt:; "ntt :b~;t'f \u offer tm1omtt~le- ~lX:!UCh
r'1';?i:lItinS
M.:l~\J .. 1!9~",ci:<hreHli!l<;ed dlIt~ nM~$.l!;;!
PAYMENTS
OPERATIONS.
Banks are trying to serve two constituencies. In addition to older customers who still want to use bank
branches and paper transactions, banks are attempting to build a more virtual service delivery model for
younger consumers. Many in the industry question the viability of community banks under $1 billion in
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00094
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.031
assets.
89
SERVING CONSUMERS' NEEDS FOR LOANS INTHE 21ST CE,N"TURYI
Only the largest banks with the necessary resources wi!! be able to make the changes outlined. The
traditiona! banking business model clearly relies on scale to be profitable. Given the level of investment
required to succeed in the 21'1 century, it is only rational that banks target the most profitable customers
segments.
According to JPMorgan Chase &
3
[0. :
" ... said about 70 percent of customers with less than $100,000 in deposits and investments will be
unprofitable following regulations that cap lenders' fees."
The biggest US banks are grappling with lost revenue from regulatlons that cap debit interchange
fees and overdraft charges, making customers with low deposits more expensive for lenders to
manage. JPMorgan, run by CEO Jamie Dimon, sees its greatest opportunity with affluent customers
that have more relationships with the company.
"Lost revenue has to be replaced with higher share of wallet and customer penetration," Maclin
said. "You have to get your costs and where you spend your time, to the fullest extent possible,
more in line with where the opportunity is,"
VerDate Nov 24 2008
16:07 Mar 28, 2013
http://www.b!oomberg.com(new$/2D12-02-28npmorgan .. vL~-cHents-'<Ylih-!eS2:.t!lliD.::..lQQ::..Q.QQ1.9.:ln.~~t.::.<.l~:
Jkt 076120
PO 00000
Frm 00095
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.032
90
SERVING CONSUMERS' NEEDS FOR LOANS INTHE 21S'f CEN'fUllY
Consumer Credit
Since the 1980's banks have used credit card lines, home equity lines and overdrafts to provide consumer
credit. Overall, community banks focus on consumer !ending has declined significantly since 1985
according to the FDIC.
Change in percent share among main cornrnunity bank
specialty groups, 1985-2010
Percent Df All Community !nsWuhons

30%
7.0%
Source FDIC Communrty Banking Re:o;e,;:Jf(:h Project
During that period, unsecured installment loans all but disappeared from bank product suites due to
profitability, risk and regulatory concerns.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00096
Fmt 6601
u'
Sfmt 6601
dl
K:\DOCS\76120.TXT
TERRI
76120.033
nf
91
SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST
r"'''''H''V
Trends in Unsecured Consumer Installment Credit

The following data from the Federal Reserve Bank of Richmond 5 depicts total debt ba!ance and its
composition from 1999 to 2011. While tota! consumer credit has more than doubled, unsecured consumer
installment credit has fallen from 9% to 3% of the total.
T"rillions of Dollars
'r JiJlions of Dollars

15
~
Mortg;;rg:e
15
.. HE Ruvolving
10
S9:Q!
OO:Q1
0"1;01
02'Q'J
03:0 I 04.Q1
{ls.a-!
06:Q'J
07:Q1
08-Q1
O~LQ1
10:01 1 '1;01
Source' FRBNY Consumer Credrt panel.lEqwfilX
Additionally, delinquent balances by loan type for unsecured consumer credit have remained fairly stable.
Elillions of Dollars
Billions of Dollars
450
450
400
400
350
350
300
300
250
250
200
200
150
150
100
100
50
50
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00097
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.034
Source.' FRBNY Consume,-Credlf Panei/EqUlr"rr
92
SERVING CONSUMERS' NEEDS
Unsecured installment credit has been supplanted by credit cards since 1989.
50%
45%
'E
~
0
?f!.
40%
35%
30%
25Q,,,
9 credit cards
20'?'b
!!lI Other
instaiJment (non auto,

non education)
"15"':'0
10%
5~1O
O'?f.
1989
<1998
2001
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00098
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.035
Source: SlIrvey of Consumer Finance 2007 Chartoook
93
SERVING CONSUMERS' NEEDS FOR LOANS IN THE
Types of Available Consumer Credit

The following outlines the types of available consumer credit. Auto and home loans are not included since
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00099
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.036
the focus of this study is on loans for purposes other than the acquisition of longer term assets.
94
Credit card, bank overdrafts and home equity lines of credit have substantially replaced installment !oans
due to the more cost efficient means of delivering these types of credit and the tax advantage of home
equity advances. Economists from the Federal Reserve noted "revolving credit, particularly credit card
debt, has substituted for small installment loans because of its ease of use and availability ... ,,6
Credit cards appear to be the primary source of !ow.-dollar, unsecured credit for consumers, but not
necessarily the best choice in some situations. That is, many consumers would prefer to match a loan for a
specific need with a defined payback schedule. Credit cards make it too easy to default to the minimum
payment and are subject to a change in terms - both which extend the cost of credit well beyond a fixed
payment term,
FDIC Small-Dollar Loan Program

Most banks do not offer unsecured
!ow~dollar
consumer ioans, In our consulting practice, we have advised
banks since the 1990's to set a minimum loan amount that can profitably be offered to the consumer. Our
break-even model indicates loans of $5,000 are the minimum loan amounts that can be profitable. The
amount varies based on the unique cost structure ofthe bank, To address this issue, banks offered credit
cards and overdraft programs to fill the need for unsecured consumer credit. Consumers with homes could
use HElOCS (home equity lines of credit) for secured loans, but with the dramatic loss of real estate value,
HELOCS are no longer a viable option for many.
In February 200S, the FDIC began a two-year pilot project to review affordable and responsible small-dollar
loan programs in financial institutions. The pilot was a case study deSigned to illustrate how banks can
profitably offer affordable small-dollar loans as an alternative to
high~cost
credit products such as payday
loans and fee-based overdraft protection.

An excerpt from the report discusses the costs associated with offering this product:
"... pilot bankers indicated that costs related to launching and marketing smal/-doffar Joan programs and
originating and servicing small-dollar loans are similar to other foans, HoweverJ given the small size of SOl.s
and to a lesser extent NSDLs; the interest and fees generated are flot always sufficient to achieve robust
short-term profitability (emphasis added), Rather, most pilot bankers sought to generate long-term
profitability through volume and by using small-dollar loans to cross-sell additional products."
In the longer term, (lAbout three-quarters of pilot bankers indicated that they primarily used smaJJ~dollar
loans to build or retain profitable, long-term relationships with consumers and also create goodwill in the
community, Afew banks focused exclusively on building goodwill and generating an opportunUy for
favorable Community Reinvestment Act (eRA) considerations, while a few others indicated that short-term
profitability was the primary goal for their smafl-dollar foan programs."
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00100
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.037
It is clear that on a stand-alone basis these loans were not profitable to originate, underwrite and process.
95
SER~'INC;
CONS(IMERS' :NEE
This is consistent with our models that indicate that individual consumer loans under $5,000, depending on
cost allocations, are unprofitable for the traditional bank to offer. Exhibit II depicts a model that only
considers direct costs of origination and processing with no overhead allocation for systems, space,
compliance and management.
The minimum loan amount is just over $5,000.
Consumer Loau Activity

7
Key findings according to an Equifax press release in July 2011 stated:

Auto
Auto loan originations rose nearly 17 percent year~to-date in Apri! and are up nine percent monthover~month.
While both banks and captive financiers are originating more auto loans, banks are
being much more cautious in the subprime sector. CaptIve finance sources (e.g., Ford Motor Credit,
etc.) issued almost 25 percent of new loans to buyers with scores under 600 in April, The
comparable bank subprime number is about eight percent.
Credit Cards
Notable within the data is the rebound in the number of bankcard originations to subprirne
borrowers, with an 80 percent increase in originations for April 2011 vs. April 2010 alone. New
subprime bankcard origination !evels for January-April 2011 are up more than 66 percent over 2010
levels. This is of note when compared to the 63 percent YQY (Year over Year) decrease the industry
witnessed for the same period from 2008 to 2009. Total new bankcard limits have risen as well,
with increases of more than 27 percent (January - April 2011), and new subprime bankcard credit
limits experienced an increase of 68 percent.
Consumer Finance
New consumer finance credit loans grew 3.5 percent year-to-date and two percent month-over
month in April, and !ike bankcards and autos - show increases in subprime. In fact, loans to
customers with scores below 599 - 41 percent are up about two percent over 2010 and almost 10
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00101
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.038
percent over 2006.
96
SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21 ~1r
rl'N1rlll>V .
Relationship of Consumer Credit to Economic Growth

8
Daniel Alpert, Managing Director of Westwood Capital, llC , analyzed the growth of consumer credit which
is growing at the highest rate in the last decade. The following chart depicts the relationship trend
between consumer credit and retail spending since January 2003,
Three Month Moving Average Growth in COl'1SlImer Credit Outstarnllng & Retail (Seatonally Adjusted)
,
i
."~
,
J
;;
E
"
_3
Mi.),
Avg. Can",mN(redtt (,rnwth (arjj)
_01 Mo. Avg. Retai!SJ!<:"S Growth (adl)
Some would argue that that too much consumer credit is harmful to both the individual and to the
economy, but access to credit is a necessity to most. Credit is useful not only when the individual's
transaction demands are uncertain but also when the individual tries to plan purchases. Credit provides a
too! against unanticipated changes to income or spending and for financing transactions where sales or
other promotions can reduce the overall cost of a transaction,
Utilization of consumer credit could increase savings and provide consumers with the ability to purchase
goods or services at an earlier time period or fulfil! other needs when cash is not available.
Use of credit, savings or increased wages drive consumer spending. One argument is that excess leverage
by consumers helped to fuel the financial crisis beginning in 2008. There are, however, economists who
state that consumers' access to credit is the quickest way to spur economic growth. From a Reuters article
dated January 9, 2012 9 :
"Outstanding consumer credit increased by $20.37 billion during the month, the Federal Reserve
said on Monday. That was the biggest gain since November 2001 and nearly three times the
median forecast in a Reuters' po!L
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00102
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.039
97
SERVING CONSUMERS' NEEDS FOR LOANS IN T .....
?1"Tr"'~T1ITl>'V
"Revolving credit, which mostly measures credit-card use, increased $5.60 billion, a third straight
monthly increase. 'Credit growth is a positive sign for the recovery in that it signals increasing
demand and willingness to spend,' said Paul Edelstein, an economist at lHS Global Insight in
lexington, Massachusetts ... "
Sizing the Market

Underbanked Individuals
The most widely quoted metric for the number of unbanked and underbanked in the United States comes
from the 2009 FDIC National Survey of Unbanked and Underbanked Households. It stated there are 9
million unbanked and 21 million underbanked. An update to this report is due to be released later in 2012.
A report from Core Innovation Capita! and CFSl
10
estimates the number of unbanked and underbanked to
be 60 million. The U.S. Posta! SelVice Office of Inspector General published a report
l1
in October, 2011 that
estimated 40 million households (73 million individuals) are either unbanked Of underbanked.
Data
13
developed by the Washington Credit Union League found:

One unbankable baby born every 7 seconds
One bankable/account-holding adult death every 13 seconds
One unbankable international immigrant every 27 seconds
Net gain of one unbankab!e person every 11 seconds or 2.8 million every year
http://cfsinnovation.com!system/fiies/09-11 %20Marketscan final.pdf

U.s. Postal Service Office of Inspector Genera! October 3,2011
Digital Currency: Opportunities for the Postal Service RARC-WP-12-001
10
11
12b~tt~P~:/!~W~W~W~.~U5~P~50~ig~giO~V/~fu~ia~fi~'e~S!~R~AR~C~.W~P.~"~2.~O~Ol~.P~d~i~~~~t_________~________________
h;;l;i
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00103
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.040
13
98
SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST CENTUR
A report
14
by Core Innovation Capital and CFSI, 2010 Underbanked Market Sizel shows the annual growth of
services used
by the underbanked from 2009 to 2010.
Umlerbanked Market Growth 2009-2010

Categories without strong historical data were exdUd,__d__,_________________,
0E Credft= 2%
n; Payments"" 6%
2010 Uod~banked MlIrk~1 Sil<! Estimate: Fees &: Interest

\,.
Sl<
$14-
$2l
$W
~ ,)$
fllhdt, l:\od C;~ft fl,lr\ld~ into

.il:f1Qtnoer tefm men .as. t.a~h or
i1
~
"
II
.!.'
$"
~l't\t.mt'jfl'i,fde:(.
II<
>ll
$I,
sa
16
$4
12
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
,,Ill
PO 00000
,_ill>
Frm 00104
D<j>O>ll
Fmt 6601
~.
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.041
"
99
SERVING CONSUMERS' Nt:EI)S FOR !.DANS IN THE 21!>T
C=E~ITlJIRY
Financial Services Life Cycle
Many tend to think of moderate~income consumers in terms of individual services rather than a holistic
view, That is, these consumers have needs for a variety of financial services and these needs tend to be
cumulative over a lifetime.
A studl 5, "The Regulation of Consumer Financial Products: An Introductory Essay with a Case Study on
Payday Lending", with Howell Jackson, Brigitte Madrian, and Peter Tufano, Chapter 7 in Nicolas P. Retsinas
and Eric S. Belsky eds. Moving Forward: The Future of Consumer Credit and Mortgage Finance, Brookings
Institution Press, dated September 2010, quantifies the financial holdings by income strata.
The following charts depict families in the lower-to-moderate income strata whose holdings include
transaction accounts, CD's, savings bonds, stocks, pooled investment accounts, retirement accounts and life
insurance. Installment and other non-real estate consumer credit are the primal)' credit drivers for these
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00105
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.042
income strata.
100
SERVING CONSUMERS' NEEDS FOR LOANS INTHE 21ST CE
By,ncomll
l"'ft""'''''''''
All f<nl.n,,~
By=",-.-
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00106
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.043
p~r~=td",
101
SERVINGCONSUIME'RS'NEED!IF()RlLO!\NS;INTHIE2:1s'rc
Alternative Financial Services

It is clear that the traditional banking, with community banks and credit unions meeting credit needs of
consumers and businesses funded with insured deposits, will not work for a growing number of consumers.
Consider a National Bureau of Economic Research published paper
16
"Financially Fragile Households:
Evidence and Implications," which found that approximately one-quarter of Americans report that they
would certainly not be able to come up with $2,000 in thirty days,
It is our contention that banking services not just forthe 60 million underbanked, but also forthe
moderate-income, debanked consumers, must begin with a dean slate. Alternative financial service
providers have built a more efficient, cost effective, technology-driven model to serve their constituency,
the moderate-income consumer.
World Acceptance Corporation, for example, reported in its 10Q SEC filing on December 31,2011, that
general and administrative costs as a percent of revenue was 48.7% (cost to generate a dollar of revenue
which is equivalent to banks' efficiency ratio). Due to the risk inherent with these loans, however, its 105s
provision was 26.6% of revenue (note that World Acceptance operates in only thirteen states).
AFS providers must operate more efficiently because of the higher risk in the market they serve.
The-e momlu er.ded
Xin~m.O!:.tb~.n.de.d
.~,~age.gro.tt!Oi!t\s,:~ehable'
A\'efl!genetklm;reccinble'
48.7%
23%
Opemm.g ~JIl'g1n l
2,t.7~'b-
28.1%
U.4%
]3,.1%
"
1,12it
Tobitlffke${atptricdencd)
16:07 Mar 28, 2013
21..7%
4JU%
1.1%
Rettlfl:\<J!1a;enJ.gea~(tr~12mooth~)
OiYke1q>eflfflDrat:quirN,net
VerDate Nov 24 2008
3_-Mi'i
Jkt 076120
PO 00000
Frm 00107
Fmt 6601
Sfmt 6601
53
1,1::0
K:\DOCS\76120.TXT
"
1,\l)4
TERRI
76120.044
:2ti.li~'
Genern1:mdadrnlnntrati:'e
TI)Wint,':l:es!apen..'1:l
102
By comparison, according to December 31,2011 FDIC statistics, there are 2,143 banks under $100 million in
assets that have an average efficiency ratio17 (the cost to generate a dollar of revenue) of 78.11% and 3,633
bank between $100 million and $1 billion in assets with an efficiency ratio of 70.12%.
One common misperception is that alternative financial service providers are unregulated when, in fact,
they are heavily regulated by the states in which they operate. Exhibit I, obtained from the American
Financial Services Association (AFSA) and the Financial Service Centers of America, Inc. (FiSCA), !ists the
various state regulatory requirements for consumer loans, payday loans and check cas hers.
The myriad of state agencies and regulations create the following:
Inconsistent product offerings among states
Elimination of certain products based on state laws
Increased compliance costs for companies operating in multiple states
Our sampling of bank and consumer loan web sites indicates that there is a void in the market of unsecured
installment loans, particularly loans under $3,000 with monthly repayment terms, not currently filled by
either banks or alternative financial service providers, For example, the five largest banks that represent
38% of all deposits in the United States offer the following:
Credit Card Only

~~~------------"-----"-"-----"--+~pe~onaILOan"$SOO--$~S~O~,O~0=0--------------4
{Must be an existing customer with other qualifying
The reasons are straightforward - most banks cannot offer these loans due to their legacy cost structure
and AFS providers are limited in their ability to provide a consistent product because of differing states'
regulations.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Noninterest expense, less the amortization expense of intangible assets, as a percent of the sum of net
income and non interest income.
Jkt 076120
PO 00000
Frm 00108
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.045
17
103
Also, banks have moved out of the neighborhoods on the low- to-moderate-incorne consumer as depicted
in this map of the New York metro area
Absence of Bank Branches in Communities of Color

New York City (2009)
A repore from The Financial Services Roundtable, "The Compliance Function in Diversified Financial
fnstitutions ll, dated July, 2007 is an excellent study in the analysis of the burden of sometimes conflicting
regulations with unclear standards and expectations as weI! as lack of coordination among the agencies.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00109
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.046
One excerpt dearly defines the issue:
104
Congress should consider moving toward a more productive form of federalism which properly
balances state and federal interests.
Uniform national standards and preemption of state laws should be considered in certain areas in
order to of/ow financial services institutions to operate on an interstate basis without having to
comply with multiple, conflicting laws. Any national standard enacted should ensure that consumers
are adequately protected.
Credit Unions have been touted as the vehicle to serve moderate income consumers. They still enjoy a tax
advantage over commercia! banks but increased compliance costs and lack of scale imperii their ability to
adequately serve the consumer.
An article 2S in the Credit Union Times dated April12} 2012 that recapped a meeting of the Credit Union
Association of the Dakotas stated:
" ... at a Sioux Falls roundtable, a string oftop managers from South Dakota credit unions and small
banks complained that the 'mountain of new regulations-18,000 pages over the past three years
coming out of Washington D.C.' is driving numerous mergers of smaller institutions unable to bear
the cost.
'''During 2011 we saw five credit unions--a!most 10% ofthe total-- involved in mergers and in each
ofthe five mergers, management and volunteers cited regulatory burden as a primary reason to
merge,' declared Schmidt who also serves as the state's chairman of CUAD's Governmental Affairs
Committee.
{{'I am sure that it isn't a shock to you Mr. Cordray or anyone else at the CFPB that credit unions are
subject to substantially more regulation now than just a few years ago but what I think might
surprise you is that of the 46 credit unions left in South Dakota,
24-~more
than ha!f--have six
employees or less,' said Schmidt. 'The wave of new regulations has overwhelmed the staffs of
these small credit unions prompting them to look for mergers,' he said."
While there is a place for !ow-dollar, short-term loans, the missing !ink are those personat unsecured loans
up to $5,000 with a term up to 36 months and monthly payments at a reasonable rate. Since most banks
are not offering these loans, alternative financial service providers are filling the gap based on individual
state regulations.
There is an opportunity either through strategic alliances or through vertical integration, for AFS companies
to become a one stop shop for the financial services needs of underbanked and debanked consumers.
Bretton Woods recommends that options be reviewed to provide better access to installment loan credit.
Role of Techuology
Financial intermediaries act as the proverbia! "middleman" by bringing together those with surplus funds
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00110
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.047
who want to lend and those with a shortage of funds who want to borrow.
105

The bank, with its physical presence, provided a safe and secure facility for the deposit of funds as well as
the knowledge of risk management to underwrite credit applications from those in need of loans. Banks
also serviced these loans by processing payments and collecting delinquent accounts.
The risks to this mode! are new enabling technologies. That is, the ability to match those with funds to
those in need of credit. There are a number of fledgling entrants into this ecommerce space and the
growth and acceptance of peer-ta-peer lending wHl very much depend on the positive (or lack thereof)
experience of the participants.

For the traditional banking system to succeed, it must embrace these new technologies. However,
embedded processes, legacy technologies and cultural inertia can dramatically slow adoption.
A typical consumer loan origination process can !ook like the following
26
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00111
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.048
Any familiarity with Six Sigma or lean Process methodologies allows one to visualize a process flow and
identify tasks and activities that either do not add value or can be automated for efficiency.
106
SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21ST CENTURY
New technologies can significantly simplify the process and eliminate many human interventions.
Alternative Financial Service providers are typically not hampered with these constraints. An equally
important issue is the industry's knowledge and understanding of its clients and its culture to provide
service that a typical bank does not support. This is represented in a study v by the Kansas City Fed, "A
Study of the Un banked & Underbanked Consumer in the Tenth Federal Reserve District" dated May 2010:
"... Participants reported turning to retailers before banks due to simpler identification requirement,
more transparent pricing, no hidden fees or penalties and immediate funds availability ... "
Another stud y28, "Public Policies to Alter the Use of Alternative Financial Services among Low~lncome
households" by Rebecca M. Blank, University of Michigan and Brookings Institution in March 2008 stated:
"Forma! financial institutions provide services that are iII~fitted to the financial needs of low-income
households. About 40 percent of payday loan recipients have bank accounts, suggesting that their payday
loan provides a service that is not available from their bank (E!liehausen and Lawrence, 2001). About half of
payday loan recipients claim to have considered a bank !oan; many of these said that the payday loan
involved an easier process; some also cited the convenient location of payday providers, Short-term loans
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00112
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.049
to lower-income customers are simply not available through many local banks ... "
107
SERVING CONSUMERS'
The Future
Consumer financial services are clearly at a crossroad. Traditional banks have marginalized the low- tomoderate-income consumer and the myriad of state regulations inhibit alternative financial service
providers to offer a standard product, achieve scale and reduce costs by operating in all SO states in a
consistent manner.
Studies of the impact of restrictive regulation at a !o-cal or regional level repeatedly show these regulations
limit options and increase costs to the consumer. For example, a research report, "The Economic Impact oj
Eliminating Preemption of State Consumer Protection Laws", from the JOURNAL OF BUSINESS LAW, 2009 29
states:
Preemption generates many dear economic benefits for banks and their customers.
Uniform national laws, and the court and regulatory determinations pursuant to them, have been used
as a device to open markets, thwart state~sponsored protectionist measures, reduce the price of credit,
increase the availability of credit, and increase the efficiency of national banks. Consumers, small
businesses, and the U.s. economy have been the ultimate beneficiaries.
Critics of preemption are misguided in their attempts to link instances of predatory lending associated
with the subprime crisis to federal preemption of state consumer protection laws. The vast majority of
subprime loans at issue were originated by finance companies that have been outside of the purview of
federal bank regulation but subject to state financial regulation. Concerns that preemption risks the
dissolution ofthe dual banking system are also misguided.
Case studies from the US wireless and wine industries provide empirical evidence that the imposition
of uniform, national regulations for interstate commerce increases economic efficiency. The implication
is that any business, including banking, that crosses state boundaries should be regulated at the
national level.
From a policy perspective, elimination of preemption would jeopardize the significant economic
benefits created by a uniform regulatory environment. However, preemption does not imply a laissez
faire approach to regulation of the financial industry: advocating for preemption is not the same as
advocating for deregulation. Po!icymakers should create new federal rules for the problem areas while
taking advantage ofthe gains uniform national standards can offer the lending industry and the
economy.
Bretton Woods believes that a new banking model forthe low- to-moder;;:lte-income consumer must be
built to better serve this community. Some community banks may be able to restructure their costs and
offer solutions for this market but that is only possible with management making a commitment and
possibly foregoing more profitable products and services. Many alternative financial services providers are
narrowly focused on a few products and do not operate on a nationalleve!. AFS providers have built a
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00113
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.050
more cost effective business model and may serve as a foundation for a new consumer banking model.
108
SERVIN(; CeJNS:UJI!
Exhibit I - AFS Regulators
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00114
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.051
Small Loans
109
SERVING CONSUMERS' NEEDS FOR LOANS INTHE 21~Tr"'"TI""" ~:~~
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00115
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.052
Payday Loans
110
SERVING CONSUMERS' NEEDS FOR LOANS I
fu,.:,
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00116
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.053
;li" :.':h,,,:
111
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00117
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.054
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00118
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.055
112
113
SERVING CONSUMERS' NEEDS FOR LOANS IN THE 21S'r CIEWrUllY ~~~_
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00119
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.056
Exhibit n - Minimum Loan Calculator
114
For Release Upon Delivery

10:00 a.m., July 24,2012
TESTIMONY
of
GROVETTA GARDINEER
DEPUTY COMPTROLLER FOR COMPLIANCE POLICY
OFFICE OF THE COMPTROLLER OF TilE CURRENCY
Before the
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

U.S. HOUSE OF REPRESENTATIVES
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00120
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.057
July 24,2012
115
Chairman Capito, Ranking Member Maloney, and members of the Subcommittee, I
appreciate the opportunity to appear before the Subcommittee on Financial Institutions and
Consumer Credit to discuss the Office of the Comptroller of the Currency's (OCC) perspectives
on H.R. 6139 "The Consumer Credit, Access, Innovation, and Modernization Act" (hereinafter
referred to as H.R. 6139 or "the bill"). The OCC recognizes the importance of providing
underserved consumers greater access to innovative and affordable financial products and
services, and through many routes we encourage national banks and federal savings associations
to do just that. However, we are concerned that H.R. 6139 would hmi the very population of
consumers that it seeks to assist, and would encourage the development of businesses with
unsafe and unsound concentrations in financial products and services that have serious consumer
protection, compliance, safety and soundness, and other risks including Bank Secrecy Act and
Anti-Money Laundering (BSAI AML) concerns.
The effective result of H.R. 6139 would be to create a class of federally chartered
companies (National Consumer Credit Corporations, hereinafter referred to as "NCCCs" or
"companies") focused on consumer credit products of the very nature and character that the OCC
has found unacceptable based on consumer protection and safety and soundness concerns. In
particular, it is our experience that the profitability of many of the types of small dollar, shortterm loans that NCCCs would likely seek to olTer is dependent on effectively trapping consumers
into a cycle of repeat credit transactions. high fees, and unsustainable debt. I Other products that
can help provide broader access to payment systems that NCCCs might offer, such as prepaid
access cards, can raise other concerns regarding the management of money laundering risks and
require extensive and costly oversight, as the Financial Crimes Enforcement Network (FinCen)
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00121
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.058
I See also Uriah King and Ozlem Tanik, "Financial Quicksand: Payday lending sinks borrowers in debt with $4.2
billion in predatory fees every year;' Center for Responsible Lending, November 30,2006.
116
highlighted when it issued rules
(0
address this concern. Yet, recognizing these significant
compliance and safety and soundness concerns, H.R. 6139 would generally compel the OCC to
approve an NCCC's proposed products or services within 45 days unless the OCC determines
that the products or services would significantly harm the interests of underserved consumers or
small businesses. This essentially requires the OCC to prove a negative consequence, based on
proposed activities not yet conducted, against a backdrop where the OCC s experience teaches
that the activities are harmful to consumers, risky, and in some respects, a brew for BSAIAML
problems.
A key premise ofH.R. 6139 is that high compliance and regulatory costs significantly
impede firms' ability to offer small dollar credit products in a profitable and efficient manner,
and that a federally issued charter would significantly lower such costs. The implied premise,
however, is that those lower costs will result from lower compliance expectations applicable to
an NCCC.
We disagree with this premise. The bill will result in a decrease in protections for
categories of consumers that may be the most vulnerable. We have ample evidence from the
recent financial crisis that the goal of enhanced access to financial products and services must be
coupled with assurances that those consumers are subject to meaningful consumer protections
and that the firms offering those products and services must do so
011
a prudent, safe, and sound
basis. In this regard, the Consumer Financial Protection Bureau (CFPB) has been provided the
authority to issue rigorous, uniform, and nationally-applicable consumer protection standards for
financial products and services. It is important that the types of products envisioned for NCCCs
not he carved out of coverage ofCFPB-administered lending standards. My testimony provides
a brief overview of H.R. 6139 and then more fully describes the OCC's key concerns about the
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00122
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.059
117
bill and the potentialncgative effect it could have on consumers and on the efforts that the OCC
and other federal and state agencies have taken to safeguard consumers from lending products
with predatory features.
Overview of H.R. 6139
H.R. 6139 would require the OCC to provide a federal chartcr to non-depository creditors
(comp<mies chartered or licensed by a state and engaged in offering consumer and small business
loans). The charter application would be reviewed and approved by the OCC pursuant to
procedures established by regulation. Section 3 establishes general eligibility criteria for a
company to be chartered as an NCCC, such as having adequate capital structure relative to the
business plans of the company, and it provides that such critcria may be supplemented by
additional criteria established by OCC regulation. Section (3)( c) of the bill permits an applicant
to be owned or controlled by other entities, including depository institutions, bank holding
companies, nonprofits, and consumer financial serviccs businesses.
Under H.R. 6139. an NCCC would be permitted to enter into joint ventures and
partnerships with other NCCCs. as well as with depository institutions, third-party vendors, and
other parties to promote or facilitate providing its financial products and services. Section 3(e)
provides that the OCC shall "encourage and facilitate" such joint ventures (without specifying
any safety and soundness or consumer protection criteria).
In addition to cbartering authority, section 3(e)(I) of the bill would require the OCC to
conduct examinations and supervise NCCCs to assess their internal controls; evaluate their
financial condition; determine if they are meeting the needs of underserved consumers and small
businesses; and monitor compliance with the requirements of the bill and all other applicable
laws and regulations. In conducting its supervision of NCCCs, the OCC would also be required
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00123
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.060
118
to consult and coordinate with other federal and state agencies to ensure that supervisory
activities, including examination schedules, are conducted in a coordinated and efficient manner.
Section 3(e)(2) of the bill would require NCCCs to, among other things, make financial
education infol1nation adopted by the OCC available to its customers; provide certain cost
disclosures for loans of one year or less that section 5 of the bill would exempt from the Truth in
Lending Act (TILi\); and offer underserved consumers who are not meeting the payments on an
extension of credit by an NCCC with a term of less than 120 days, an extended loan repayment
plan. An NCCC would be prohibited from accepting deposits; making commercial loans except
for certain small business loans not in excess of$25,000; making consumer loans with a term
less than 30 days; and intentionally extending credit in certain circumstances, including when the
maximum principal amount of all credit outstanding extended by such NCCC to the consumer
exceeds $5,000 (or $25,000 in the case ofa secured credit transaction).
The primary business of an N CCC would be to offer products and services approved by
the OCC. The OCC would receive a description of any products or services proposed by an
NCCC, including how the product will help meet the credit needs of under served consumers or
small businesses and be commercially viable (which the bill defines as expected to produce a
reasonable economic profit). Under section 3(f)(2), the OCC would he required to prescribe
regulations with procedures for the review and approval of such proposals, but the procedures
may not include disapproval or conditional approval of a financial service or product unless the
oce determines that offering the product or service will signi ficantly harm the interests of
underserved consumers or small businesses. A proposal will he deemed to be approved if the
OCC has not notified an NCCC of its decision within 45 business days after submission. The
bill further provides that any such products or services approved by the OCC for underserved
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00124
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.061
119
consumers and small businesses may be ofTered to other consumers and small businesses.
Section 3(g) would providc for the payment to the oee of annual fees to ofTset the cost of
carrying out the provisions of the bill.
OCC Concerns with H.R. 6139

The oec's fundamental concem is that H.R. 6139 would provide special status and
federal benefits to companies and third-party vendors that would primarily engage in offering
credit products and services that the oce has previously found to be unsafc and unsound and
unfair to consumers. These include payday loans, tax refund anticipation loans (RALs), and
automobile title loans. Our supervisory experience with these products is that they are based on
a business model that is not sustainable from the perspective oflow and moderate income
customers--high fees, repetitive use, high defaults, and severely weak legal compliance. Indeed,
the very products and services this bill is designed to encourage often result in significant abuses,
and, in fact, the OCC took enforcement action related to one ofthe proponents of this bill (Cash
America) for such abuses.
Against this experience, we are concemed that H.R. 6139 would negate many actions that
Congress, the OCC, and other fcderal and state agencies and supervisors have taken to safeguard
consumers from the risks products of this nature present to consumers. For example, based on a
Department of Defense study of predatory lending atTecting service members, their dependents,
and military readiness, Congress (in the John Warner National Defense Authorization Act, P.L.
109-364) restricted the costs and terms of certain abusive credit products alTered to members of
the military and their dependents. It is unclear whether or how H.R. 6139's prohibitions on
establishing usury caps or limits would affect this important protection provided to our nations'
service members.
2
See http://w\V\v.occ.gov!staticienforcement-actions!ea2003-1.pdf.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00125
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.062
120
By requiring the OCC to charter NCCCs that present business plans that meet certain
chartering criteria, and to approve products or services tbat sucb companics would offer unless
the
acc makes an express determination that such product or service will significantly harm the
interests of underserved consumers or small businesses, n.R. 6139 would undermine steps the
acc has taken over the past ten ycars to address significant consumer protection issucs,
BSA/AML, and safety and soundness risks that many of these products pose. For example, H.R.
6139 directs the OCC to encourage and facilitate joint ventures between NCCCs and third-party
service providers and vendors to help facilitate innovative products and services. Through our
supervisory and examination processes, we have found that financial institutions that have
partnered with third-party providers to originate or deliver sueh products and services can
encounter serious risks because of the failure of vendors to adequately eontrol and manage their
business operations. The Comptroller has recently singled out third-patty oversight as a
significant contributor to the operational risks facing financial institutions.
More generally, through a combination of guidanee and strong enforcement actions, the
acc has aeted to severely limit payday lending, RALs, and similar activity within the
institutions we regulate. The
ace has also taken steps to deter and prevent third-party finns
from promoting and peddling such products by relying upon the use of a national bank charter
through a business arrangement with a national bank or federal savings association.
Specifically, the
oec was the first federal banking agency to issue comprehensive anti-
predatory lending standards. In 2000, we issued advisories on payday loans, title loans, and
abusive lending practices designed to prevent national hanks and their subsidiaries from
engaging in lending practices that were unfair and deceptive] Between 2001 and 2003, the
oee
See "AI., 2000-T' (http://www.occ.gov/statklncws-issuances/memos-advisory-letters/2000/advisory-letter-20007.pdf), "AL 2000-1 0" (htlp:llwww.occ.gov/static/ncws-issuallccslmemos-advisory-Ietters/2000/advisory-letter-
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00126
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.063
121
also took decisive enforcement actions against a varicty of banks and atIiliated service providers
(i.e., Cash America, Advance America, ACE, Dollar Financial) for unsafe and unsound lending
practices and violations oflaws, including violations of the Federal Trade Commissioll Act and
In 2010, the
oce acted to severely curtail the sale and marketing of RALs among
national banks because 0 f the consumer protection and safety and soundness risks arising from
the product's unique rcpayment and cost structures, and because of the banks' reliance on thirdparty tax return preparers to offer them S We are concerned that !-I.R. 6139 would penn it-and
encourage-insured depository institutions to re-establish such atIiliatiolls through NCCCs that
the OCC would be charged with approving.
In addition to consumer compliance and protection issues, we believe the narrowly
focused charters and the types of products NCCCs would offer raise serious potential safety and
soundness concerns. H.R. 6139 would allow and encourage NCCCs not aft1Jiated with insured
depository institutions to form aft1liations with third-party vendors. As previously noted, our
experience suggests that such vendors often lack the requisite systems and procedures to comply
with the myriad of BSA/AML and other regulations and risk management practices that are
essential to the safe and sound conduct of these activities. We believe NCCCs would face
significant BSAIAML exposure resulting from their dependence on products with remote deposit
capture characteristics and lack direct cllstomer contact and traditional long-term customer
relationships, such as prepaid cards, internet-ofTered products and money transfer services.
2000- JO.pdf), and "AL 2000-11" (hltp:l/www.occ.govlstaticlnews-issuanccs/memos-advisory-leltersI2000Iadvisoryletter-2000-ll.pdf).
4 See enforcement action 2003-1 against First National Bank in Brookings (http://www.occ.gov/staticJenforcementactions!ea2003- J .pd!), enforcement action 2003-2 against Peoples National Bank
(http://www.occ.govlstaticlenforcement-actionslca2003-2.pdf), enforcement action 2002-93 against Goleta National
Bank (http://v'iww .occ.gov!static/enforcement-actions!ea20q-93.~Q.9D, and enforcement action 200 I-I 04 against
Eagle National Bank (http://www.occ.gov/staticlenforcement-actions/ea200 I-I 04.pdf).
5 See "oee 201 0-1" (http://www.occ.gov/news-issuancesibulletins/2010ibulietin-2010-7.htmIJ.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00127
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.064
122
Information and transparency is vital to the proper management of BSA/ AML risk. Our
supervisory experience also indicates that companies with limited business focus and product
lines face significant concentration risks that can threaten their viability if underlying business
conditions in their market area deteriorate or change (for example, the closing of a nearby
military base). These risks are magnified for linns that lack a stable funding base and are
dependent on non-dcposit wholesale funding. We believe that NCCCs created under H.R. 6139
would be highly susceptible to these risks.
We are also concerned that H.R. 6139 could blur authorities and responsibilities for the
OCC and the CFPB and create additional contusion for consumers. For example, companies
chartered under the bill would be required to provide to their customers any financial education
intlll1nation that is adopted by the OCe. While we endorse etlorts to improve financial literacy,
this is an area where Congress has given the CFPB broad authority. Similarly, II.R. 6139 would
exempt from the requirements of TILA--which the CFPB implements-loans with terms of one
year or less ifthe creditor has provided the borrower with a clear and conspicuous statement in
the loan agreement of the cost of the loan expressed as a total dollar amount and as a percentage
of the principal amount of the loan. This exemption would apply not only to NCCCs but also to
any other creditor making these loans. We are concerned that this provision would exempt shortterm loans from important TILA protections and disclosures that currently apply, such as the
APR and finance charge; would substitute a different disclosure standard that would not allow
consumers to compare costs with credit products subjecllo TILA; and would thereby mask the
potentially high APRs of the categories of short-term loans to be offered by NCCCs, such as
payday loans and RALs. A recent study released by the Pew Chmtitablc Trusts Small Dollar
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00128
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.065
123
Research Project noted the difficulty consumers may have in trying to compare a product where
the rate is quoted as a simple interest rate with one where the rate is expressed as APR. 6
Finally, we are concerned that the standard H.R. 6139 imposes of "significant harm to the
interests of underserved consumers or small businesses" in order for the OCC to deny a proposed
product or service would be difficult to implement, and could face challenges. Assessing
potential hann or benefit to an individual or even class of consumer would bc very fact specific,
take a significant amount of time, and could vary over time depending on a consumer's situation
and available product alternatives.
As previously noted, a key motivation for establishing a national charter for credit
corporations appears to be the benefits that uniform regulations could provide to such finns. We
believe the creation of the CFPB already provides an avenue f(lr achieving this objective without
creating a new class offederally chartered financial institutions. Congress has given the CFPB
regulatory authority to adopt standards related to consumer products and services offered in the
marketplace, without regard to whether they arc offered by banks, nonbanks, or state- or
federally supervised institutions. Further, tbe CFPB has general authority to supervise and
regulate nonbank lenders, including payday lenders and "large nonbank participants" in
consumer credit and services, and will be conducting examinations of such companies. The
sponsors ofH.R. 6139 may want to consider discussing with the CFPB how its existing
regulatory and supervisory authority can be used to achieve the goals of the bill.
We also note that Congress has previously assigned to the Treasury Department the task
of developing programs for small-dollar loans that would serve as alternatives to costlier smalldollar loans, and Section 1025 of the Dodd-Frank Act authorizes the Secretary of the Treasury to
"Payday Lending in America: Who Borrows, Where They Borrow, and Why," the Pew Charitable Trusts SmallDollar Research Project. p. 17.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00129
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.066
124
establish demonstration programs for this purpose. The OCC believes such programs would
provide a valuable mechanism for supervisors and industry participants to collaborate on
innovative approaches
(0
address the needs of underserved consumers and consumers who may
have blemished or limited credit history and thus limited access to traditional credit products.
Conclusion
In summary. (he OCC is concerned that HIt 6139 could have a number of unintended
and undesirable effects for the population that it is intended to benefit. In particular. fLR. 6139
raises serious consumer protection. compliance, and safety and soundness issues by creating a
new federal charter for companies concentrating on products and services most prone to abuse
and that are most often targeted to minority populations, low-income neighborhoods. and
communities with high concentrations of our military service members. These are products and
services that the OCC has largely extinguished from the national banking system. and we would
not support, license, nor chmter an institution concentrating in these services today.
Furthermore, where these services are offered. state officials and the CFPB have adequate
authority to regulate these products and services and the companies that provide them. The OCC
shares the authors' goal of providing financial services to underserved communities and
unbanked populations, and looks forward to working with members of the Subcommittee to
achieve that goal.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00130
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.067
to
125
STATEMENT BY
MARY JACKSON
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND
CONSUMER CREDIT
Washington, DC
July 24, 2012
Thank you for this opportunity to submit my written statement as part

of the record. I am pleased that the subcommittee is holding this hearing to
consider legislation that would allow consumers more credit options.
As a tenured employee of Cash America International (NYSE:CSH),
I've spent more than 20 years advocating for consumers who deserve an array
of financial options. That is why I am here to express my support ofH.R.
6139, the Consumer Credit Access, Innovation and Modernization Act,
relating to a federal non-bank charter. This legislation will provide consumers
with access to new, innovative financial products that are generally
unavailable to them at traditional institutions such as banks and credit
unions.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00131
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.068
Cash America is an innovative, 28-year old company that offers

specialty financial services in the United States and abroad. As a heavily
regulated organization, we operate in 39 states and hold more than 4,100
licenses to offer unsecured and secured, non-recourse products, which include
pawn loans, installment loans, lines of credit, cash advance loans, auto equity
loans, gold buying, check cashing, money orders/transfers, bill pay and
prepaid debit cards. These services offer viable options for hard-working
126
Americans who need and want access to credit. We desire to offer more
options to consumers, but unfortunately, we are restricted. There is a
disconnect between the speed of product innovation by the private sector and
the outdated state laws currently set up to govern those products.
The demand for affordable credit is significant and growing, while
available credit alternatives are shrinking. A federal non-bank charter would
take the industry from varying laws in 50 states to one overriding solution.
The state-by-state model is utterly ineffective. The patchwork of credit
products currently available by state means we can't offer the same choices to
consumers with identical financial needs because they are separated by
nothing more than a state line.
Under the charter, American consumers living in different states would
have access to the same products. The charter would also allow consumers
longer loan terms of 60, 90 even 120 days to one year to repay their loans,
which can be designed to pay down the principal balance over the term of the
loan. This is important considering that a recent study by the National Bureau
of Economic Research revealed that almost half of American consumers can't
even come up with $2,000 in 30 days to meet an emergency. The financial
products gap is real and getting wider. Options are dwindling and there's
nothing there to replace them. We have to begin to articulate a nationwide
approach and put a plan into action. That's what we believe is outlined in the
Consumer Credit Access, Innovation and Modernization Act.
In closing, let's not marginalize non-bank lenders into a category of
financial services that can be deemed as "alternative." We're becoming more
mainstream and we need avenues to continue serving consumers with more
options. We encourage you to support a non-bank charter- not just because
we're asking, but because of customers like Elizabeth from Ohio who wrote us
saying: "For people who can't get bank loalls, small loans are the only option. '.'
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00132
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.069
As an advocate for consumers, I urge the committee to consider H.R.

6139. The legislation would provide a single solution to meet the needs of all
Americans and ensure sustainable access to credit for them for years to come.
127
TESTIMONY Of
JOHN MUNN
DIRECTOR Of BANKING AND FINANCE
NEBRASKA DEPARTMENT OF BANKING AND FINANCE
On behalf of the
CONFERENCE OF STATE BANK SUPERVISORS
On
"EXAMINING CONSUMER CREDIT ACCESS CONCERNS, NEW PRODUCTS AND FEDERAL

REGULATIONS"
Before the
FINANCIAL INSTITUTIONS AND CONSUMER CREDIT SUBCOMMITTEE

UNITED STATES HOUSE OF REPRESENTATIVES
Tuesday, July 24, 2012, 10:00 a,m.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00133
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.070
Room 2128 Rayburn House Office Building
128
INTRODUCTION
Good morning, Chairman Capito, Ranking Member Maloney, and distinguished Members of the
Subcommittee. My name is John Munn, and I serve as the Director ofthe Nebraska Department of
Banking and Finance.
It is my pleasure to testify before you today on behalf of CSBS. CSBS is the nationwide
organization of banking regulators n'om all 50 states, the District of Columbia, Guam, Puerto Rico, and
the U.S. Virgin Islands. State banking regulators supervise over 5,400 state-chartered banks. Further,
most state banking departments also regulate a variety of non-bank financial services providers, including
payday lenders, check cashers, money services businesses, and mortgage lenders. In my state of
Nebraska, my department is responsible for regulating state-chartered banks and trust companies, statcchartered credit unions and savings and loans, mortgage lenders, consumer lenders, sale of check and
funds transmissions, and delayed deposit services and payday lenders.
I thank you, Chairnlan Capito, and the Members of the Subcommittee, for holding this hearing on
consumer credit and proposals to federalize the provision of short-term consumer credit and related nonbank t1nancial services. State regulators playa central role in overseeing the non-depository consumer
credit industries, and we appreciate the oppOltunity to be part of this important discussion.
In my testimony, I will provide our views on H.R. 1909 and 1LR. 6139, both of which propose to
create a federal charter for consumer credit companies, and 1 will provide an overview of state
supervision of non-depository, non-mortgage t1nancial services providers.
STATE REGULATORS' CONCERNS ABOUT A FEDERAL CONSUMER FINANCE

COMPANY CHARTER
r applaud the efforts of Representatives Baca, Luetkemeyer, and their colleagues to make
financial services and products available for unbanked and underbanked consumers. While we recognize
that providing under-banked and unbanked individuals with access to financial services and products is an
important objective, we have significant concerns about H.R. 1909 and H.R. 6139 because both bills:
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00134
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.071
129
Establish an option for a federal business charter without meeting the necessarily high thresholds
that Congress has traditionally required for receiving such a benefit;
Circumvent the stutes' ability to establish and enforce laws govcrning the provision of financial
services to their citizens; and
Undermine the carefully structured state-federal balance in financial services regulation.
Federal Charters Should Only Be Granted in Very Limited Circulllstances
Historically, Congress has created federal charters only in highly limited circumstances. This
rellects the delicate balance assigned to the Congress by the Constitution: Congress has the power to
regulate Commcrce among the states, but powers not delegated to Congress by the Constitution are
reserved to thc states.
In this context, providing the federal government the authority to issue charters with a benefit
beyond mere incorporation is the result of a Congressional determination that federal government
involvement was needed to meet compelling public purposes. For instance, the National Currency Act,
subsequently renamcd the National Banking Act, addressed the need for a single national currency to
finance the Civil War after the Legal Tender Act failed to garner the public's confidence. To do so,
nationally chartered banks were permitted to issue notes backed by the federal government. Similarly,
federal thrift charters permitted savings and loans access to the Federal Home Loan Bank System, which
provided a government-backed mechanism to address a nationwide lack oflong term credit availability
for housing during the Great Depression.
In both instances, Congress developed a program with specific govemment-backed products to
address a particularized federal interest, a construct thai is absent in H.R. 1909 and H.R. 6139. In
contrast to these situations, the vast majority of industries and businesses -- large and small
in the
United States thrives and mects important consumer needs very succcssfully without a federal charter.
State regulators share Congress's concerns regarding under banked consumers and pledge to
work with Congress to address this important social and economic problem. llowcver, H.R. 1909 and
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00135
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.072
130
H.R. 6139 falls short of the proper state-federal construct required to properly address this issue and do
not meet the highly particularized circumstances where a federal charter is the appropriate policy solution.
H.R. 1909 and H.R. 6139 Circumvent Stale Authori!y

By creating a federal charter and preempting state licensing and consumer protection laws, H.R.
1909 and H.R. 6139 undermine states' authority to license and regulate a variety of non-bank financial
services providers and eliminate the states' ability to protect their citizens and affect local credit markets.
The current legal structures governing the types of businesses covered by the two bills have longstanding f(mndations in state law. The citizens of the individual states, through their legislatures and
other elected officials, have determined thc conlours ofthe financial services companies operating within
their borders, the state regulatory regimes overseeing such businesses, and the consumer protection
standards such companies must meet. The state laws that apply to payday lenders, check cashers, and the
other non-bank entities in this legislation rel1ect policy decisions by the states about the benetits and costs
of such products. These state laws are designed to limit the pitlalls of such financial products, while
ensuring these products arc available when and where needed.
In my home state of Nebraska, much of the state legal stmeture around deposit services and
payday lenders was adopted in the early 1990's. At that time. our legislature made the decision to take
this business out of realm of unregulated back alleys and loan sharks and to put it into licensed
storefronts; in fact, the industry sought this move as a way of keeping bad actors out. The result of this
action by state policy makers was that consumers would still be able to access these services and
products, but with a greater level of consumer protection and greater accountability on the part of
providers. In Nebraska, payday loans are limited to no more than $500, cannot exceed 34 days in
loan term, cannot have fees in excess of $15 per $100, and bOITowers are limited to no more than
two outstanding loans at a time, with no rollovers. For calendar year 2010, Nebraska had
approximately 115 licensed payday lenders; these companies, in the aggregate, reported total
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00136
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.073
131
operating income exceeding $35 million, and net income of$7.5 million -- a 20% net return after
taxes.]
The provisions of H.R. 6139 supporting and encouraging the use of the internet in this
type oflending, when combined with the bi II's elim ination of state jurisdiction, raise particular
concerns as it seems aimed at exchanging existing state oversight and consumer protections for
enhanced business opportunities.
Currently, some institutions operating online consider
themselves beyond state lines and therefore not subject to local consumer protections. But the
transactions and the potential for consumer harm remain very locally real. A long-distance loan
without local protections is not good for the consumer. States vary in their approach to Internet
lending. In my home state of Nebraska, internet payday transactions are not allowed. This
reflects the response of policy makers in our state to the lack of accountability as to the party on
the other side ofthe transaction and concerns about consumer protection, data security and
privacy.
However, my colleagues in other states approve and license various non-depositories
conducting both online and face-to-face transactions. Regardless of how the business is
conducted, if it is state-licensed, the entity is subject to state consumer protection laws and state
regulatory examinations. Our concern with H.R. 1909 and H.R. 6139, in particular, is that the
bills encourage companies to offer financial products with no local accountability and
encourages mass distribution through the Internet. My testimony discusses below the state-federal
collaboration that Dodd-Frank established in creating the Consumer Financial Protection Bureau. The use
of the Internet in delivering consumer financial products is one area where we see particular benefit in
having a federal partner to address national iss lies in a manner that complements state oversight. In
Nebraska Department of Banking and Fin:lIlce, 2011 Annual R\illQrt at 39.
http://www.ndbl.ne.gov/reporls!2011-Annual-Report.pdf
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00137
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.074
132
contrast, H.R. 1909 and H.R. 6139 seek to provide a blanket endorsement oflntemet-based lending while
avoiding comprehensive regulation.
We urge Congress to consider carefully the implications of these bills. H.R. 1909 and
H.R. 6139 would replace these locally-made decisions with a federal regime. Congress should
not supplant state sovereignty lightly. The desire to help underserved consumers gain access to
products and services should not be used as a cover to allow certain providers the opportunity to
avoid eompliance with laws that they believe run counter to their own profitability. With
virtually no product limits included in the bill, it is hard to envision selt~imposed provider controls
creating a more affordable environment for the undcrserved.
Congress and the COUlts have long taken the view that federal preemption of state law is the
exception not the rule and that preemption is only warranted in very limited situations. Understanding
local markets and business practices requires a strong presence in the community. Given the inherently
local nature of single-transaction industries, it is managerially impossible to monitor safety and soundness
and consumer compliance across the 50 States, District of Columbia, Puerto Rico, Guam, Northern
Mariana Islands. and Virgin Islands. While consumer credit services expand to the Internet. the core
transaction still occurs at a local level that requires local oversight. The Constitution established a
federalist system to balance local and national priorities. and only a balanced state-federal regulatory
regime can appropriately address a consumer's safety and access to credit.
Established and Productive State-Federal RCl!.ulatory
Partnership~
The state law structures and processes governing financial services providers are complemented
by federal partners. In banking, state regulators have well-established relationships with the federal
banking agencies. In the non-bank arena, state regulators have worked with federal agencies including
the Financial Crimes Enforcement Network ("FinCEN"), the Depattment of Housing and Urban
Development, and, most recently. the CFPB. These state-federal partnerships leverage the benefits and
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00138
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.075
133
strengths of each side of the relationship. The states bring to this partnership an on-the-ground
perspective that comes from heing in the communities that their regulated entities serve. States serve as
the front line licensing and regulatory authority, ensuring that companies wishing to offer such services
meet certain minimum requirements and comply with state and federal laws. The federal component
hrings to this state-federal partnership a national perspective that informs and reinforces, without
supplanting, state authority.
This structure did not come ahout by accident. Federalism has always heen the organizing
principle of the U.S. government. Our nation's founders sought to create a system of self-mle that
disttihuted power across the broadest possible base, with checks and balances that would prevent any
individual person or government entity from exercising too much power.
Financial supervision has evolved in a way that retlects this federalist system of representation
and laws. Rounds of financial system restructuring have granted new powers to the federal government
and created new federal regulatory structures, but Congress has always been careful to respect the states'
authority to issue charters and business licenses and to regulate financial services providers. During each
round of major reform over the past 150 years, Congress has recognized that the states' authority to
charter and supervise financial services providers is not merely tradition, but prudent necessity.
The participation of both state and federal agencies in financial services regulation has heen a
source of strength rather than weakness for the system, as it draws on two levels of resources and
expertise. Because states are physic.ally closer to the financial services providers they supervise and have
more in-depth local knowledge of the areas these providers serve, state regulators can often identify
potentially trouhlesome trends or practices before these issues huhble up to the federal level. If problems
hecome systemic, the federal government is best poised to act in a manner that protects the economy on a
national level.
A perfect case study of successful federalist supervision is the development, launch, and
widespread implementation of the Nationwide Mortgage Licensing System and Registry ("NMLS," or the
"System"). What initially started as a grass-roots effort to protect consumers in the absence offederal
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00139
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.076
134
legislation or regulation evolved in a state-federal regulatory framework conceived and initiated by the
states, implemented by Congress, and adopted by federal regulators.
Approximately 10 years ago, state regulators recognized the need to enhance supervision of the
residential mortgage industry. To do so, state regulators, through CSBS and the American Association of
Residential Mortgage Regulators (AARMR), developed and launched NMLS to establish a state-based,
natiollwide regulatory infrastructure that would license and track mortgage companies and brokers and
allow for coordinated state supervision and a central repository for enforcement actions.
As the U.S. economy began 10 jalter, Congress recognized the need for major mortgage market
reforms, and passed the Housing and Economic Recovery Act in June 2008 to try to stabilize the market.
Under the leadership of Chainnan Bachus and other members ofthis Committee, that law included the
Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the "SAFE Act"), which requires all
residential mortgage loan originators be either licensed or registered through NMLS. The SAFE Act also
established a framework clarifying state and federal roles and a mechanism for state and federal
coordination and infoffilation sharing.
Cone ems about a "patchwork quilt" of state laws have been proven to be completely inaccurate.
Within one year of passage of the SAFE Act, all SO states had enacted laws to implement the mandates of
the SAFE Act to build upon the existing state efforts to form a uniform and seamless system of mortgage
supervision. The states embrace cooperative efforts, interstate agreements, and model standards to
provide consistent supervision. But we also must maintain Ollr sovereignty in order to respond quickly
and decisively to protect consumers in our states when we identity concerns in our own jurisdictions.
State-federal collaboration in banking laws is well-established. The Financial Institutions
Regulatory and Interest Rate Control Act of 1978 created the Federal Financial Institutions Examination
Council (the "FFIEC") with state participation. Congress strengthened this participation in 2006 by
adding a state regulator as a voting member of the FFIEC.
Most recently, the Dodd-Frank Act reaffirmed the importance of the dual-banking system and a
federalist system of tlnancial supervision. Just as in previous refi:mn efforts, the dual-banking system
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00140
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.077
135
emerged from the debate intact, thereby preserving a system of coordinated state-federal financial
oversight. Whether it is the inclusion of state financial regulators in the Financial Stability Oversight
Council, or various other provisions calling OIl federal regulators to coordinate andlor consult with state
regulators, the current financial regulatory fabric includes state regulators as a critical component
Members of Congress on both sides of the aisle and in both chambers made a conscious decision
to leave in place existing state regulatory regimes across nUmerous areas including banking and non-bank
financial services providers, such as those that would be affected by H.R. 1909 and H.R. 6139. Both bills
run directly contrary to the goal of state-federal regulatory collaboration, as the effect ofthe bill will be to
fundamentally undo the existing state-federal partnership, federalizing industries that have been largely
within the jurisdiction of state regulators.
H.R. 1909 and H.R. 6139 Distort the Market

State regulators have a deep appreciation for the importance of diversity in the financial services
industry. Our members' granular and practical perspectives on the financial credit markets in their states
have led to a view that one size does not fit all when it comes to delivering financial services. States
regulate a very diverse set of entities, ranging from $ J00 billion-plus banb serving national markets to
locally-based small businesses ofTering consumer financial services. Both H.R. 1909 and H.R. 6139
could undem1ine this diversity by stratifying the industry and creating a regulatory regime that serves the
interest of the larger participants in this market to the disadvantage of the smaller companies. Neither
consumers nor the broader financial market arc served by policies that bifurcate industries and that tilt the
marketplace in favor of only certain types or sizes of institutions.
Additionally, the bills' provisions about business relationships between national consumer eredit
companies and depository institutions. when combined with the bill's preemption provisions, appear to be
an effort to undennine Dodd-frank's provisions which deny bank affiliates and operating subsidiaries
access to national bank preemption. The effect ofthis would be to create yet another inconsistency in the
marketplace.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00141
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.078
136
Additional Concerns
I would like to mention a fcw additional concerns that CSBS has with the proposals that we have
seen.
Inconsistent Consumer Disclosures, Under one legislative proposal, national consumer credit
companies would not be required to disclose the ,mnual percentage rate (APR) to consumers, The
purpose ofthe APR is to provide consumers with a tool for comparing loans between competing lenders,
With RR. 1909 and H.R. 6139, consumers will be faced with (wo types nfnon-comparable disclosures:
those provided by state-licensed lenders with the APR, and those provided by OCC-chartered lenders
with no APR.
Inappropriate Support (or Business Relationships. H.R. 6139 directs the OCC to encourage
business relationships between national consumer credit companies and depository institutions
effectively telling a regulator that is should encourage business relationships between its regulated
entities. Regulators simply do not -- and should not
be required to support such relationships, This is
an inappropriate role for regulators and skews the marketplace in favor of one subset of institutions.
THE STATE OF STATE SUPERVISION
Supervisory Techniques Utilized by State Regulators of Non-Depositories

A key ingredient of state supervisory efforts is the licensing of non-depository providers. States
have regulated non-depositories for decades and virtually all states require licensing of most nondepositories. The licensing of a non-depository typically requires the submission of personal background
information on directors or officers, financial statements, surety bonds, and company policies. Once
licensed, supervision transfers to examination oversight where state regulators trust, but verify, that the
licensee is in compliance with safety and soundness and consumer protection requirements.
Today's state supervisory processes and information exchanges are largely formalized through
regulatory associations and multi-state information sharing agreements. The associations include CSBS,
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00142
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.079
137
AARMR, the National Association of Consumer Credit Administrators (NACCA), the Money
Transmitter Regulators Association (MTRA), and the North American Collection Agency Regulatory
Association (NACARA). Non-depository supervision is rapidly coalescing around the NMLS as a
mechanism for a\l types of non-depository licenses, and in the coming months and years, the System will
act as a functional supervision environment with the ability to manage examination case loads, process
conSumer complaints, and archive examination records. For licensees, the NMLS has brought efficiency
as it has promoted greater uniformity and consistency across the states.
Tn addition to these organizational connections, state regulators have joined forces through
information and resource sharing agreements including the Nationwide Cooperative Agreement for
Mortgage Supervision, the Money Transmitter Regulators Cooperative Agreement, the Nationwide
Cooperative Agreement for MSB Supervision, the Information Sharing and Common Interest Agreement
Between the State Attorncys General and the State Financial Regulators, the CFPB-CSBS Memorandum
of Understanding, and the MOU between the U.S. Department of the Treasury, Financial Crimes
Enforcement Network, and the state agencies. These agreements facilitate the legal and timely exchange
of supervisory information and foster a cooperative environment of regulatory constructs focused on
efficiency and eiJcctiveness in state supervision.
Information sharing among regulators is central to effective and comprehensive oversight.
would also like to note that CSBS supports H.R. 6125, Congressmen Renacei's and Perlmutter's recentlyintroduced legislation to ensure that information shared with certain state and federal regulators retains
confidentiality and privilege as it is shared with and among those regulators.
Currently in process is a new initiative to bring together the regulators of non-depository
providers that arc not already joined through a cooperative agreement. This includes check cas hers.
payday lenders, consumer finance companies, debt management companies, collection companies and
any others identilied as benefitting trom a multi-state coalition. This agreement will be modeled upon the
states' prior successes in coordinated supervision.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00143
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.080
10
138
With or without multi-state coordination, states have long utilized our proximity to the entities we
supervise to identify emerging trends and take action when necessary, Because of our close proximity to
those entities we regulate and the local nature of most non-depository services, state regulators arc most
often best positioned to identil'y emerging threats and are able to move quickly in response, For instance.
in 2010 alone, state regulators took approximately 9,500 actions against non-depository financial service
providers,' And because states are closest to local and regional economics, they arc best suited to
dctennine consumer needs and business viability.
The majority of states conduct periodic on-site examinations of non-depositories. These exams
are generally on an 18- to 24-month cycle and are based on risk assessments performed by regulators.
State non-depository examination standards and objectives often share certain similarities with bank
examinations, including a review of financial strength, operational effectiveness, asset quality, transaction
volume, record keeping and reporting requirements, and capital adequacy, as well as Bank Secrecy Act
and Anti-Money Laundering (AML) compliance, Non-depository exams also cover areas not typically
found in bank examinations, including licensing requirements and compliance with state and federal
consumer protection law.
In addition to regulation and supervision of business practices. requirements on the front-end of
consumer transactions are used to increase transparency for consumers, Through disclosure requirements
consumers are made aware of the service and product being provided. It is important to stress that
consumers conducting transactions with stale-authorized providers are afforded both federal and slate
consumer protections, and that many state regulators are charged with not only examining and enforcing
state requirements, but aU federal requirements, as welL This authority is unique to the state system of
supervision and is not duplicated on the federal side. Despite the fact that most COnsumer protections
exist within state law and regulation, no federal regulatory agency has the authority or responsibility to
examine or enforce under these statutes,
Source: CSBS 2010 non-depository survey, Not ali states responded to the survey,
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00144
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.081
11
139
It may also be tempting for some to think that state supervision means inferior oversight. State
non-depository supervision agencies employ approximately 700 field examiners dedicated to the
examination of non-depositories. These compliance examiners perform on average more than 11.000
examinations each year for check cashers. payday lenders and money transmitters. or approximately 950
exam inations each month.
However. contrary to the both bills' premise that state supervision is excessive and costly. state
supervision is specifically calibrated to the business model being examined. State exams vary, but can
include reviewing policies and procedures, interviewing management and employees, reviewing
advertising, testing transaction files for consumer compliance, and reviewing the institution for safety and
soundness concerns. In the case of payday lending. where the transaction is relatively homogenous and
uniform in documentation and disclosure, state examiners are able to fulfill these review responsibilities
with an average of only nve hours per examination.
Likewise, this can be said for the burden of complying with various state restrictions placed on
these financial products. Limitations on rates, fees, and numbers ofloans per consumer are easily
understood and unchanging. A lender operating in Nebraska should have no more difficulty charging a
$15 fee on a $100 loan than they would have in Connecticut charging a $17 fee on a $100 loan. Arguing
that snch limitations create excessive compliance burden is rhetoric, not reality.
Supervision of Multi-State Non-Depository Providers

As the recent financial crisis evolved, state regulators recognized a need to create more
coordinated supervision and more efficient channels of communication and infonnation sharing. To that
end. in 2008 CSBS and AARMR established the Multi-State Mortgage Committee (the "MMC") to serve
as the coordinating body for examination and enforcement supervision of multi-state mortgage entities
(MMEs) by state mortgage regulators. This successful venture largely serves as the state supervisory
model going forward with other non-depository areas.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00145
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.082
12
140
The MMC is tasked with developing examination processes that will assist in protecting
consumers from mortgage fraud; ensuring the safety and soundness of MMEs; supervising and examining
in an integrated, Ilexible and risk-focused manner while minimizing regulatory burden and expense; and
fostering consistency, coordination, and communication among state regulators. The MMC is made up of
mortgage regulators from 10 states and represents all states' mortgage supervision interests under the
Nationwide Cooperative Agreement for Mortgage Supervision,
On the money transmitter side of state supervision, the MTRA formed the foundation for multistate efforts by executing the Money Transmitter Regulators Cooperative Agreement in 2002 and the
MTRA Examination Protocol in 2010, which 46 states have signed. These documents set up the
lramework the states use to coordinate money transmitter examinations and share information,
minimizing regulatory burden on supervised entities and conserving regulatory resources.
To continue to improve multi-state supervision, the states enhanced the scope and expanded the
scale oftbe 2002 MTRA Cooperative Agreement and the 2010 MTRA Examination Protocol through the
CSBS-MTRA Nationwide Cooperative Agreement for MSB Supervision and the Protocol for Performing
Multi-State Examinations. The enhanced Agreement covers currency dealers or exchangers, traveler's
checks, money orders, prepaid access, stored value, and money transmitters. It is designed to promote a
framework of coordination and consistency while ensuring regulatory requirements are met and burden is
reduced for industry. To do so, the Agreement and Protocol outline how states will work together to
examine for consumer protection and safety and soundness requirements in an efficient manner for both
the states and supervised entities,
Through multi-state supervision agreements, state regulators actively work together to reduce
regulatory burden and increase regulatory efficiency. Multi-state exams have a "lead state," which serves
as a central point of contact. The lead state coordinates document and information requests and acts as a
repository for documentation to help minimize duplicative document requests. As in the case of an exam
conducted by a single state, multi-state exams focus on state and federal conslImer proteetion review, but
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00146
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.083
13
141
also include analysis of the provider's financial condition, adherence to state and federal regulatory
requirements, and compliance with the Bank Secrecy Act and anti-money laundering requirements,
The various state regulatory associations play an active role in facilitating the multi-state
supervision process. The ahility to pool resources and the resulting increase in consistency and
coordination benetits both the slate banking departments and the regulated entities. States have
recognized this through the work of the MMC and multi-state efforts in the MSB arena, as well as
licensing through the NMLS. and we are confident this approach has the proper halance of efficiency and
local regulation, as we bring multi-state supervision to all non-depositories. These efficiencies also carry
through to coordination with federal regulators. The newly created crPB has a mandate to coordinate
with state regulators in carrying out its responsibilities. Existing infrastructures such as the MMC and
MMET help states engage and coordinate efficiently in supervisory efforts with the erPB.
This coordinated supervisory effort is intended to minimize regulatory burden and expense for the
industry, and foster consistency, coordination and communication among the state regulators. Rather than
subject a multi-state provider and its management to multiple state requests fix information, the multistate process conducts these examinations under a single examiner in charge with a coordinated approach
and request for information. a system long sought after by the larger non-depository providers.
As mentioned above, the licensing of non-depository institutions is a key component of state
supervision. Just this year, CSBS has expanded the use ofNMLS to accommodate state use of the
System for non-mortgage, non-depository financial services industries, including consumer lending,
money services businesses, and debt collection. Since April 2012, seven state agencies in Louisiana,
Massachusetts. New Hampshire, Oklahoma, Hhode Island, Vermont, and Washington have begun
transitioning non-mortgage license authorities onto NMLS. Six more agencies plan to expand their use of
NMLS in 2012, and at least 12 additional agencies are expected to do in 2013, including my home state of
Nebraska.
As demonstrated by state participation in the mortgage and MSB Cooperative Agreements and a
history of multi-state examinations and enforcement actions, and by ongoing collaborative efforts
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00147
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.084
14
142
between state and federal regulators, enhanced state coordination benefits regulators, the regulated
entities, and consumers. Today's non-depositories are local in touch and national in scale, so state and
federal regulators must work together to ensure effective and consistent supervision. The evolution of
state regulation has shown that uniform intrastructure and federal policy can support - not supplantlocal governance and oversight. Combined state-federal regulatory regimes that include clear and
appropriately calibrated incentives can promote consistent and comprehensive regulation without losing
the benetits of states' "on the ground" perspective.
CONCLUSION
State financial regulators have done much to improve and enhance non-depository regulation to
better protect the consumer and to strengthen the financial services market. Key to serving these goals is
ensuring that the market is diverse and supports a variety of business models. As state regulators, we
benefit from our proximity to the consumer transaction and to the communities served by the tinancial
services providers. We hear first-hand about the regulatory burdens, and we see up close the
consequences of bad actors. H.R. 1909 and H.R. 6139 take this perspective out of the picture for a broad
range of transactions and financial services providers, to the detriment of the marketplace and of
consumers.
The challenge for polieymakers-and for the regulators who implement those policies-is to
create a regulatory tramework that ensures industry professionalism, industry and regulatory
accountability, and the proper alignment of incentives but that also avoids unnecessary regulatory
inefficiencies and burdens. For state regulators, policies and approaches that encourage regulatory
collaboration and coordination and that support regulatory innovation have been vital to striking this
balance.
Thank you for the opportunity to testify before you today. I look forward to responding to any
questions or thoughts you may have.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00148
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.085
15
143
Americans for Financial Reform

1629 K 5t NW, 10th HOOf, Washington, DC, 20006
202.466.183~
IIi\.!ERltAN5
FQ{I FINANCIAL REfORM
July 24, 2012

The Honorable Carolyn B. Maloney
U.S. House of Representatives
2332 Rayburn House Office Building
Washington, DC 20515-3214
Dear Congresswoman Iv1aloney,

We write to urge you to oppose H.R. 6139, the "National Consumer Credit Corporation Charter and Consumer
Access Innovation Act of2012," and any similar legislation that rnay be introduced.
The bill would:
Weaken consumer protection against fi.nancial abuses;

Undermine the authority of the CFPB over a huge swath of consumer financial products and services; and
Override state consumer protection laws through preemption.
Among our many concerns with the legislation, ILR. 6139 would replace regulation of ray day lenders by the
Consumer Financial Protection Bureau (CFPB), and state consumer protection regulators and Attorney's General,
with greatly weakened consumer proteclion standards administered by the Office of the Comptroller of the Currency
(OCC). Simply put, the bill constitutes a sharp downward departure from the consumer protection standards
established by Dodd-Frank and sidelines state law enforcement.
H.R. 6139 would allow national consumer credit corporations to bypass the oversight of the eFPB and state law
enforcement agencies, and instead choose to be regulated by OCC. It would create a new federal charter under the
for a broad range of consumer financial products and services now suhject to state supervision, which \evould
include payday lenders, installment lenders, car-title lenders, prepaid-card issucrs~ check cashers, money-ordcr/wirctransfer/remittance providers, and morc. The OCC would become the primary regulator for these financial services
ace
companies and their products.

This shift exposes consumers and the financial services marketplace to the very dangers that contributed to the
economic crisis. The CFPB was created for the sole purpose of protecting consumers through oversight~ rulcmaking
and enforcement of the rules for the very consumer financial products and services marketed and sold by the
companies covered in this legislation. In contrast, the ace's primary mission is to protect financial companies, not
protect consumers from deceptive or abusive lending practices.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00149
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.086
The bill would also allow for the OCC to override state-based consumer protections through preemption. By getting
an oce charter, companies could evade state consumer protections. But the states' strong consumer protections
144
would not be replaced by equivalent or stronger federal law - insteao, the companies could take advantage of weaker
standards used in the OCC's chartering and oversight process. This echoes the m0l1gagc crisis, where the ace's
aggressive preemption of state protections against abusive home loans, \vithout putting into placc effective federal
protections. contributed to the melt-down. H.R. 6139 and similar bills would repeat the same mistake [or other
consumer financial services.
H.R. 6139 also undermines more than 40 years of established and accepted consumer protections. The bill exempts
lenders from core consumer protections, such as the federal requirement that they disclose the annual interest rate on
loans. It also would wipe out longstanding state oversight and consumer protections against usurious loans and
abusive practices.
Less than six months after the Consumer Financial Protection Bureau has been fully operational with a director in
place, H.R. 6139 would backtrack on Congress' promise to consumers. This bill offers nothing beneficial for
consumers - and removing consumer finance companies from CFPB oversight will set a precedent for many other
companies to also seek exclusion.
We urge you to oppose H.R. 6139 and similar bills. and allow the CFPB and the states to consider appropriate rules
of the road so that consumers can choose among products in a fair and transparent marketplace.
Sincerely.
Americans for Financial Refonn
Arkansans Against Abusive Payday Lending
California Reinvestment Coalition
Center for Responsible Lending
Consumer Action
Consumer Federation of America
Grass Roots Organizing
Mission Asset Fund
NAACP
National People's Action
NEDAP
Southwest Center for Economic Integrity. Tucson, Arizona
U.S. PIRG
Woodstock Institute
Following arc the partners of Americans for Financial Reform.

All the organizations. support the overall principles rtf AFR and are workingfhr an accountable,}l.lir and Sf!cure
financial ,~}wtem. Not all afthese organizations It'ork on all afthe i,~~\'ues covered b,v the coalition or have s(i,,'lJ1cd on to
epel)' statement.
A New Way Forward
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00150
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.087
AFL-CIO
AFSCME
Alliance For Justice
Americans for Democratic Action, inc
145
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00151
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.088
American Income Life Insurance

Americans United for Change
Campaign for America's Future
Campaign Money
Center for Digital Democracy
Center for Economic and Policy Research
Center for Economic Progress
Center for Media and Democracy
Center for Responsible Lending
Center for Justice and Democracy
Center of Concem
Change to Win
Clean Yield Asset Management
Coastal Enterprises Inc_
Color of Change
Common Cause
Communications Workers of America
Community Development Transportation Lending Services
Consumer Action
Consumer Association Council
Consumers for Auto Safety and Reliability
Consumer Federation of America
Consumer Watchdog
Consumers Union
Corporation for Enterprise Development
CREDO Mobile
CTW Investment Group
Demos
Economic Policy Institute
Essential Action
Greenlining Institute
Good Business Intemational
HNMA Funding Company
Home Actions
I-lousing Counseling Services
Information Press
Institute for Global Communications
Institute for Policy Studies: Global Economy Project
International Brot'herhood of Teamsters
Institute of Women's Policy Research
Krull & Company
Laborers' Intemational Union of North America
Lake Research Partners
Lawyers' Committee for Civil Rights Under Law
Move On
NASCAT
National Association of Consumer Advocates
National Association of Neighborhoods
National Community Reinvestment Coalition
National Consumer Law Center (on behalf of its low-income clients)
National Consumers League
National Council of La Raze
146
National Fair Housing Alliance
National Federation of Community Development Credit Unions
National Housing Trust
National Housing Trust Community Development Fund
National NeighborWorks Association
National Nurses United
National People's Action
National Council of Women's Organizations
Next Step
OMB Watch
OpenTheGovemment.org
Opportunity Finance Network
Patiners for the Common Good
PICO National Network
Progress Now Action
Progressive States Network
Poverty and Race Research Action Council
Public Citizen
Sargent Shriver Center on Poverty Law
SEIU
State Voices
Taxpayer's f(x Common Sense
The Association for Housing and Neighborhood Development
The Fuel Savers Club
The Leadership Conference on Civil and Human Rights
The Seminal
TlCAS
U.S. Public Interest Research Group
UNITE HERE
United Food and Commercial Workers
United States Student Association
USAetion
Veris Wealth Partners
Western States Center
We the People Now
Woodstock Institute
World Privacy Forum
UNET
Union Plus
Unitarian Universalist for a Just Economic Community
List of State and Local Signers
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00152
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.089
AlaskaPIRG
Arizona PIRG
Arizona Advocacy Network
Arizonans For Responsible Lending
Association for Neighborhood and Housing Development NY
Audubon Partnership for Economic Development LDC. New Yark NY
BAC Funding Consortium Inc . Miami FL
Beech Capital Venture Corporation. Philadelphia PA
147
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00153
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.090
California PIRG
California Reinvestment Coalition
Century Housing Corporation, Culver City CA
CHANGER NY
Chautauqua Home Rehabilitation and Improvement Corporation (NY)
Chicago Community Loan Fund, Chicago IL
Chicago Community Ventures, Chicago IL
Chicago Consumer Coalition
Citizen Potawatomi CDC, Shawnee OK
Colorado PIRG
Coalition on Homeless Housing in Ohio
Community Capital Fund, Bridgeport CT
Community Capital of Maryland , Baltimore MD
Community Developmcnt Financial Institution of the Tohono O'odham Nalion, Sells AZ
Community Redevelopment Loan and Investment Fund, Atlanta GA
Community Reinvestment Association of North Carolina
Community Resource Group, Fayetteville A
Connecticut PIRG
Consumer Assistance Council
Cooper Square Committee (NYC)
Cooperative Fund of New England, Wilmington NC
Corporacion de Desarrollo Economico de Ceiba, Ceiba PR
Delta Foundation, Inc., Greenville MS
Economic Opportunity Fund (EOF). Philadelphia PA
Empire Justice Center NY
Empowering and Strengthening Ohio's People (ESOP), Cleveland OH
Enterprises, Inc., Berea KY
Fair Housing Contact Service OH
Federation of Appalachian Housing
Fitness and Praise Youth Development, Inc., Baton Rouge LA
Florida Consumer Action Network
Florida PIRG
Funding Partners for Housing Solutions, Ft. Collins CO
Georgia PIRG
Grow Iowa Foundation. Greenfield IA
Homewise, Inc., Santa Fe NM
Idaho Nevada CDF!, Pocatello ID
Idaho Chapter. National Association of Social Workers
Illinois PIRG
Impact Capital, Seattle W A
Indiana PIRG
Iowa PIRG
Iowa Citizens for Community Improvement
JobSlart Chautauqua, Inc., Mayville NY
La Casa Federal Credit Union, Newark NJ
Low Income Investment Fund, San Francisco CA
Long Island Housing Services NY
MaineStream Finance, Bangor ME
Maryland PIRG
Massachusetts Consumers' Coalition
MASSPIRG
Massachusetts Fair Housing Center
148
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00154
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.091
Michigan PIRG
Midland Community Development Corporation, Midland TX
Midwest Minnesota Community Development Corporation, Detroit Lakes MN
Mile High Community Loan Fund, Denver CO
Missouri PIRG
Mortgage Recovery Service Center of L.A,
Montana Community Development Corporation, Missoula MT
Montana PIRG
Neighborhood Economic Development Advocacy Project
New Hampshire PIRG
New Jersey Community Capital, Trenton NJ
New Jersey Citizen Action
New Jersey PIRG
New Mexico PIRG
New York PIRG
New York City Aids Housing Network
New Yorkers for Responsible Lending
NOAH Community Development Fund, Inc., Boston MA
Nonprofit Finance Fund. New York NY
Nonprofits Assistance Fund, Minneapolis M
North Carolina PIRG
Northside Community Development Fund, Pittsburgh PA
Ohio Capital Corporation for Housing, Columbus OIl
Ohio PIRG
OligarchyUSA
Oregon State PIRG
Our Oregon
PennPIRG
Piedmont Housing Alliance, Charlottesville VA
Michigan PIRG
Rocky Mountain Peace and Justice Center, CO
Rhode Island PIRG
Rural Community Assistance Corporation, West Sacramento CA
Rural Organizing Project OR
San Francisco Municipal Transportation Authority
Seattle Economic Development Fund
Community Capital Development
TexPIRG
The Fair Housing Council of Central New York
The Loan Fund, Albuquerque NM
Third Reconstruction Institute NC
Vermont PIRG
Village Capital Corporation, Cleveland OH
Virginia Citizens Consumer Council
Virginia Poverty Law Center
War on Poverty - florida
WashPIRG
Westchester Residential Opportunities Inc.
Wigamig Owners Loan Fund, Inc., I,ac du Flambeau WI
WISPIRG
149
Small Businesses
Blu
Bowden-Gill Environmental
Community MedPAC
Diversified Environmental Planning
Hayden & Craig, PLLC
Mid City Animal Hospital, Pheonix AZ
The Holographic Repatterning Institute at Austin
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00155
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.092
UNET
150
July 20, 2012
Chairman Spencer Bachus

Financial Services Committee
2129 Rayburn HOB
Washington, DC 20515
Dear Congressman Spencer Bachus:
The Hispanic Institute (THI) strongly supports HR 6139, The Consumer Credit Access,
Innovation and Modernization Act to create a national charter for non-depository institutions.
THl, as part of our mission, studies Hispanic economic contributions as well as the impact of
federal and state financial policies on this country's largest minority population. Research
conducted by THI and others, consistently shows that the traditional banking system fails to
provide adequate consumer credit to the Hispanic community. Banks demonstrate little interest
in serving this emerging and robust economic constituency, and inadequate federal government
regulatory policies do not help. Thus, THI concludcs that national nonbank chartered institutions
could provide innovative credit products that Hispanic consumers need and desire.
The Hispanic community trails other groups on most measures of economic well-being and that
the gap has widened since 2005. A recent report by the Pew Research Center, "Hispanics Say
They Have the Worst of a Bad Economy," found that while Latinos represent 16% of the U.S.
population, 75% identified their personal finances as in "only fair" or "poor" shape. 49% delayed
a major purchase in the last year, and 28% were underwater on their mortgage. 1 A previous Pew
Research Center study, "Wealth Gaps Rise to Record Highs between Whites, Blacks, and
Hispanics," reported that the median household wealth among Latinos fell by 66% from 2005 to
2009 2 In 2009, the FDIC reported that 43.3% of Hispanics were either unbanked or under
banked. 3 Three years later, that number is likely to have grown to over 50 percent. These
statistics underscore that banks continue to underserve the Hispanic community with predictable
results.
2
3
VerDate Nov 24 2008
16:07 Mar 28, 2013
"Hispanics Say They Have the Worst of a Bad Economy," Pew Research Center, January 2012
"Wealth Gaps Rise to Record Highs Between Whites, Blacks, Hispanics," Pew Research Center, July 2011
"FDIC National Survey of Unbanked and Under banked Households," FDIC, December 2009
Jkt 076120
PO 00000
Frm 00156
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.093
151
It is imperative that the federal government finally look beyond the traditional banking system.
THI endorses new financial regulatory policies to allow alternative financial services providers
to invest in credit products and services most suited to our constituency. Two years ago, our
report "Thinking Outside the Banks: Hispanic Access To Non-Traditional Credit Sources" found
that in making credit decisions, Hispanics consider several options, include foregoing certain
purchases or payments (rent/mortgage, health care, transportation. utilities. credit cards, food,
and fees), or seek alternative credit options.
Historically, there is no doubt banks have done a fiscal and moral disservice to minorities in
general and Hispanics in particular. We know that banks have red-lined borrowers in our
communities, predatorily lent to our families, and preyed on our homeowners with onerous and
costly subprime lending. Lives and families are being destroyed while banks continue to get a
slap on the wrist and settlements for pennies on the dollar from a federal government that claims
to protect consumers.
As your Committee considers new policies, it's essential that these policies encourage greater
access to credit services and additional safe and regulated products for low income families.
Inaction or ineffective changes that constrain access to credit services will bring long-tenn
negative impacts to Hispanic community. Since traditional banks cannot or decline to broaden
access to credit, alternative financial services providers can help. They possess the willingness,
technologies and innovation necessary to bring better credit options to the American market.
The federal financial regulatory system outdates current consumer credit demands. HR 6139
will provide the alternative needed to serve the Hispanic community.
Sincerely,
Gus K. West
President and Board Chair of The Hispanic Institute
www.thehispanicinstitute.org
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00157
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.094
906 Pennsylvania Avenue S.E., Washington, District of Columbia, 20003
152
The 60 Plus Association

515 King Street .. Suite 315. Alexandria, VA 22314
Phone 703.807.2070 Fax 703.807.2073 www.60Plus.org
Ifonorary Chairman
President
Chairman
National Spokesman
July 23. 2012
House Committee on Financial Services

Subcommittee on Financial Institutions and Consumer Credit
Dear Committee Members.
On behalf of 7.2 million senior citizens, we are writing to express our sllpport for H.R. 6139, the
"Consumer Credit Access, Innovation and Modernization Act," introduced by Rep. Blaine Luetkemeyer
(R-MO) and co-sponsored by Rep. Joe Baca (D-CA), Rep. Stephen Fincher (R-TN), Rep. Gregory Meeks
(D-NY), and Rep. David Schweikert (R-AZ). Our organization prides itself on representing a solid and
determined group of retired Americans who built their lives honestly and to the best of their God-given
abilities. Many of our seniors are resorting to credit options to fill holes in their budgets. But given the
nature of the credit crisis, many find they are not able to get the credit they need. A recent study by the
National Bureau of Economic Research found that half of Americans are unable to raise $2,000 within 30
days to meet an emergency.
Our households represent a diverse and largely middle-class group of senior citizens who worked
hard and played by the rules. We continue to pride ourselves on our ability to live the rest of our days
blessedly free from big government interference.
We also fully understand that some of our seniors do, occasionally, find themselves in need of
short-term financial support to meet unexpected expenses. Many of our seniors are resorting to transient
credit options to fill holes in their budgets. But given the nature ofthe credit crisis, many find they are
not able to get the credit they need.
It is our understanding ofthe current challenges that confront our economy and the fact that a
growing class of financial services and technology innovators arc creating short-term credit solutions,
with fully disclosed fee terms, that lead us to support the overall focus ofH.R. 6139 which was
introduced last week.
In the coming months, our supporters and policy team will play close attention to the review of
this legislation as it winds its way through assorted committees on Capitol Hill. For now, though, we are
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00158
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.095
satisfied with the fact that this legislation is the product of bipartisan engagement and the ingenuity of
153
teclmology innovators who are matching the market imperative of quick, efficient access to short-term
credit solution lhat meet the occasional, transient financial needs of 60 Plus members.
Sincerely,
James L. Martin, Chairman
a
lvledicare, a/Jordable prr.feriplioll
ipell
aJ
a stnd adberflltc 10 the
"""-''''11111011.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00159
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.096
newsletter, SnNIOR VOICE, and a

Plm has been (,-aIled, Han in(.'f(!asin/!i)'
154
www.quikpawnshop.com
July 23, .2012

The Monorabl Shelley Moore Capito, Chairman
The Honorable Carolyn Maloney, Ranking Member
House Committee on Financial Services
Subcommittee on Financial Services Committee and Credit
2129 Rayburn House Office Bundlng
Dear Chairman Capito and Ranking Member Maloney:
As an owner of a pawnshop company I am writing to stress my strong support for
HJt 6139, The Consumer Credit Access, Innovation and Modernization Act,
sponsored by Representative Luetkemeyer and Representative Baca.
I commend the bill's sponsors .and committee leadership for taking up this
important piece of legislation. As someone on the front lilles of the credit crisis, I
can tell you with certainty that many Americans are not having their credit needs
met by banks, credit unions or any of the other non bank lenders in the country.
Many studies support whllt I see on a daily basis, people need loans In the $1000 to
$5000 range and find that institutions are either unwilling or unable to help them,
leaving them unable to finance car l'epa!!"s or other midrange expenses or start or
fund small business operations,
I understand that the National Pav.'nbrokers Association has come out in opposItion
to this bill, but as someone who has been in this business for 34 years I strongly
beHeve that any effort to Increase the credit options of Americans is something that
should be supported,
The pawn business lsa noble profession and I am proud to be part of Its storied
history. But I can tell you as a pawnbroker I am limited in the credit options! can
offer borrowers. For Instance, I am required to take collateral for any loan! make.
So even if under my underwrIting standards f beHeve a borrower is a good risk I
cannot make them a loan without collateral. Under state law, I am required to
coHect the full princtpal of the loan and my fee in one lump sum within 30 days even
in determine that the borrower would be better off with a loan that allowed him to
pay the balance down over a length of time.
H.R. 6139, would help alleviate this problem by creating a national charter for non
depository institutions which would allow companies !.ike mine to develop and offer
innovative and affordable products to horrowers in a manner simllar to other
federally chartered lending institutions, Companies chartered under the provisions
of this legislation would be subject to the full regulatory and supervi.sory authority
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00160
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.097
Post Office Box 241525 Montgomery, Alabama 361241525334-2810052' Fax 3342819029
155
of the Office of Comptroller of Currency (OCC).ln addition, these companies would
be subjected to the oversight of the CFPB and state attorneys general for additional
consumer protection. I urge your support for DR 6139.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00161
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.098
Frank Evans
CEO
Quik Pawn Shop
156
STATE OF UTAH
OFFICE OF THE ATl'OR"NEY GENERAl.
MARK L. SHURTLEFF
ATTORNey GENERAL
Statement ofHon. Mark Shurtleff, utah Attorney General 011 H.R. 613<}, the "Consumer Credit
Access, Innovation and Modernization Act," to the Subcommittee on Financial Institntions and
Consumer Credit of the House Financial Services Committee
Chairwoman Capito and Members of the Subcommittee, I am pleased to present this testimony
on H.R. 6139, the "Consumer Credit Access, Inn(lvation and M(ldernizati(ln Act." This bipartisan bill,
recently introduced by Congressmen Luetkemeyer and Raca, would provide for the issuance of a federal
operating charter by
for qualified nonbank lenders which focus their lending activities (In providing
loans and other financial pr(lducts and services to underserved consumers wh(l generally cannot obtain
the credit they (lften desperately need from traditional banking institutions. These new lenders also w(luld
be allowed t(l provide additional credit t(l small businesses with less than 500 employees,
ace
Let me begin by noting a simple, itTefutable a.nd very troubling truth: we have a sh(lckingly large
number of Americans----tens of millions of consumers, reportedly perhaps as high as half of American
families---who have ongoing needs f(lr small-d(lllar credit extensions and these consumers typically are
unable to obtain the loans they need from dep(lsitory institutions. Experience has sh(lwn that it is
extremely diftlcult, if not impossible, f(lr most banks to make a c(lmmercially viable profit on such small
l(lans. Banks have relatively high operating C(lsts on small loans and, perhaps more significantly, as
federally insured deposit(lries, necessarily high credit standards to guard against credit losses.
Underserved consumers typically have tess than perfect credit histories and pOSe higher credit risks.
Most could not qualiJY under banks' credit requirements cven if these depository instituti(lns (lffered
more small loons. Banks therefore cannot be expected to be able t(l serve this market segment all a
widespread basis anytime soon.
an
Underse.rved consumers are left with seeking to meet their pressing credit needs by relying
largely on loans and (lther financial services fr(lm nondepository lenders such as finance companies, titie
and payday lenders, and pawn shops, and on family and friends, as well as "!(lan sharks" and
unfortunately increasingly on rogue offshore Internet lenders who disregard federal and state consumer
pwtection laws and often charge exorbitant prices. This last group is especially concerning to me and
(lther Attorneys General.
I applaud the intent ofH.R, 6139 in seeking to provide underserved consumers, as well as small
businesses, with far more credit alternatives, and ch(lices that arc inn(lvative, more affordable and better
suited to their needs. From my perspective as Utah's top law enforcement officiall want to focus my
comments on h(lw I believe this legislation addresses consumer protection, First, I believe that having
these new Consumer Credit C(lrporati(lns should greatly increase competition in the underserved segment
of the marketplace. Competition will lead to more innovation and lower prices for consumers, and it
will help weed (lilt many of the bad actors. In that regard, if enacted, this bHl would go a long way
towards overcoming the growing problem we now have with tmregulated (lffsh(lre fntcrnet lenders.
UTAH ST,<\'12 CAPiiot ~ 350 NO,,'TH STAr" STH~ET, SLJITI', zsn p,o. Box 142320 SAL'!' LAK< CITY, UTAH 84114Q320
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00162
(801) 536-9600 FAX; {801) 5S61121
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.099
TI';l~PHONf':
157
Consumers are likely to shift to well-regulated domestic Internet and storefront lenders operating as
Consumer Credit Corporations which should be able to offer them better priced, more suitable financial
products.
Let me add a word on the importance of promoting competition as opposed to protecting
competitors. I am sure that you will have some nonbank lenders strongly oppose this bill because they
fcar competition from these new federally chartered lenders. This is not surprising, especially since
many nonbank lenders essentially have be granted very profitable credit monopolies under various state
laws to offer limited types of high cost, high profit credit products. I urge you from a public policy
perspective to have your decisions on this legislation guided by the principle of promoting competition,
not protecting competitors.
Now, my other main concern with this legislation is whether it provides for adequate consumer
protections and for a strong role for State Attorneys General or other state regulators as the "cop on the
street" to enforce those protections. As this legislation was being drafted, I conveyed these concerns to
its sponsors and am very pleased that they have addressed them in H.R. 6139 as introduced. Specifically,
the bill provides that all federal financial consumer protection laws apply to these new Consumer Credit
Corporations, just as they do to other creditors, be they depository or Ilondepository lenders. In that
regard, in addition to acc enforcement of this bill's provisions, the Consumer Financial Protection
Bureau (CFPB) would have full enforcement authority under those federal laws to regulate Consumer
Credit Corporations. Most impOltantly from the perspective ora State Attorney General, H.R. 6139
provides that State Attorneys General, or comparable State regulators, would have full authority to
investigate violations and enforce the provisions oflhis legislation without specific acc authorization,
and all of these State officials' existing enforcement authorities under the Dodd-Frank Act and various
federal laws and regulations are preserved. I strongly endorse these provisions and urge that Congress
adopt them.
In closing, r want to comment on the bill's preemption provision, which is based on the workable
concepts that Congress passed in the Dodd-Frank Act. While I believe that federal legislators should be
judicious in applying federal preemption, I recognize that in some cases it is appropriate, and I think this
is one of them. Simply put, we have a credit crisis for millions of Americans in literally every state.
Congress must act to provide far better credit access to these underserved consumers who cannot obtain
adequate credit from traditional banking institutions. The current patchwork of widely differing, often
conflicting and outdated state laws clearly does limit innovation and product offerings by nonbank
lenders who now serve this market and high lender compliance costs raise consumcrs' costs. What other
way is there to cut through this regulatory morass than to provide at least an optional federal approach for
nonbank lenders to be able to offer consumers many more credit choices? Frankly, I see none.
Given that this legislation provides state regulators with full enforcement authority of all
applicable federal laws, I am comfortable with applying preemption in this instance. These federal laws
and implementing regulations provide very strong and quite adequate consumer protections, and I and
other state regulators will have no impediment to enforcing them to protect the consumers in our
respective states.
r commend H.R. 6139's sponsors for their thoughtful approach to addressing our nation's
consumer credit crisis and for their responsiveness to the concernS I and other state regulators have
raised, and I urge this Subcommittee to move H.R. 6139 forward toward enactment.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00163
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.100
-2-
158
STATE OF
UTAH
On!CE OF THE ATTORNEY (;"NERAt
MARK
L.
SHURTLEFF
ATTORNEY GENERAL
JOHN E. SWAlLOW
Protecting Utah Protecting You
Chll'110epl.Ily
KIRK TORGENSEN
Chiel0>9put"
july 23, 2012
The Honorable Shelley Moore Capito, Chainnan

The Honorable Carolyn B. Maloney, Ranking Member
The Financial Institutions and Consumer Credit Subcommittee
The Committee on Financial Services
United States House of Representative
2129 Rayburn House Office Building
Dear Chainnan Capito and Ranking Member Maloney;
As an Attorney General tasked with upholding critical consumer protections, 1 am writing
to you on behalf of consumers at risk across my state. Specifically, I am reaching out today in
response to your request for comments on the Consumer Credit Access, Innovation and
Modernization Act.
This bill would authorize the Comptroller of the Currency (OCC) to issue federal
operating charters to National Consumer Credit Corporations (NCeCs) which ,,,ould be
nondepository lenders that focus their lending activities on providing many more affordable
credit options to underservcd consumers, as well as to small businesses. NCCCs would be
subject to regulation and supervision by the GCC with respect to their business operations and by
the Consumer Financial Protection Bureau (CFPB) with respect to compliance regarding all
federal consumer financial protection laws (e.g., Truth in Lending), NCCCs would also be
subject to nondiscriminatory state consumer protection laws and other such state lending laws
that do not prevent or significantly interfere with a NCCC's exercise of it~ powers in providing
OCC approved products to underserved consumers. In essence, the bill follows the preemption
standards set out in the Dodd-Frank Act applicablc to national banks. In addition, the bill
provides for State Attorneys General to enforce the provisions of this bill in areas where oce is
the primary regulator on a case-by-case basis, and, most significantly, State Attomeys General
UTAH STNE CAPITOL' 350 NORTH STAT STREET, SU'TE 2-30 F,O, Box 142320' SALT LAKE CITY, UTAH 84114,,232Q
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00164
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.101
TELEPHONE;; (001) 538-9600 FAX: (801) 5301121
159
The Financial Institutions and Consumer Credit Subcommittee
July 23,2012
Page Two of Three
also would retain their separate authority lmder Dodd-Frank to enforce federal consumer
financial protection laws with respect to these new federally chartered nondepository lenders.
As pointed out in the Congressional Findings in the bill, it is well established that tens of
millions of Americans----around half of all families----have periodic needs for short-term, small
loans and other nondepository financial services that they cannot obtain from traditional banking
institutions, typically because their credit history prevents them from qualifying for loans under
the high standards insured depositories must maintain. To meet their pressing credit needs,
these consumers throughout the nation must and do rely primarily on nondepository lenders, such
as finance companies, payday and title lenders, and pawn shops, which have more flexible credit
standards.
My state has its own unique set of laws that govern what types of credit products may be
offered to local consumers. While state lending laws offer important consumer protections, as
noted in this bill's findings, they also can have other effects that adversely impact consmners.
Differing state laws do increase lenders' compliance costs, which are passed on to consumers,
and they typically only allow lenders (0 ofTer a narrow range of credit options which in many
cases are not well suited to a consmner's particular needs. However, from the perspective of an
Attorney General as tile chief law enforcement officer in my state, there is a serious and
disconcerting issue presented that is growing rapidly.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00165
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.102
Millions of consumers in states throughout the nation are turning to online lenders to
meet their credit needs. While legitimate U.S. based online lenders are an important source of
credit and are regulated by federal and state laws, there also are many offshore online lenders
who are now operating in disregard of our laws and in many instances engaging in abusive
lending practices. It is extremely challenging under the best of circumstances to take effective
enforcement actions against these offshore lenders. While your bill is not intended to directly
address this problem, we believe that it will help do so indirectly. If consumers have more
affordable, better-suited and well-regulated domestic credit options, they will be far less likely to
seek credit from unregulated offshore lenders. And, increased competition should also provide
other consmner benefits such as lower priced products.
160
The Financial Institutions and Consumer Credit Subconmlittee
July 23,2012
Page Three of Three
While consumers deserve to have ample affordable credit alternatives, my main concern
as Attorneys General is to ensure that any creditor operating in my state are subject to strong
consumer protection laws, be they state or federal statutes, and, most significantly, that my office
has authority to enforce these laws against lenders who do not abide by them. In this regard, I
want to point out that we already have a so-called "dual banking system," with both federal and
state chartered and regulated depository institutions, where state Attorneys General have
considerable authority to enforce federal consumer financial protection laws, as well as
applicable state laws. If your lcgislation is enacted, we will still have state licensed and
regulated nondepository lenders as well as the new NCCCs that will bring more competition to
this market segment.
I am pleased that this legislation would make NCCCs fully subject to not only GCC
regulation as to their business operations, but also to regulation by the new federal Consumer
Financial Protection Bureau (CFPB), which would be their primary regulator with respect to all
federal consumer fmancial protection laws. This is quite important from our perspective because
Attorneys General have significant authority under the Dodd-Frank Act to enforce the federal
consumer fmancial protection laws and CFPB' s implementing regulations. It also is appropriate,
as you have provided for to have the case-by-case state enforcement authority in areas where
GCC is the primary regulator, and to follow the more restrictive Dodd-Frank preemption
standards instead of adopting a broader approach.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00166
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.103
Sincerely,
161
Kenneth W. Edwards' Responses to Questions for the Record
Financial Institutions & Consumer Credit Subcommittee Hearing
Examining Consumer Credit Access Concerns, New Products, and Federal Regulations
1) Your testimony seems to contend that ifH.R. 6139 were to be enacted, the CFPB would
not have the authority to regulate National Consumer Credit Corporations. The
legislation. however, specifically states on page 24, that a credit corporation is, "subject
to all otherwise applicable provisions of federal statutes and regulations, including the
consumer financial protections laws listed under section 1002(12) of the Consumer
Financial Protection Act 01'2010 [and implementing regulations]." This includes CFPB
enforcement and all federal consumer protection laws. How do you reconcile your
position with this legislative language?
RESPONSE: The enumerated consumer laws, listed under Title X, section 1002(12) of
the Consumer Protection Act of 20 10 (hereinafter "Dodd-Frank"), specifically refer to the
18 enumerated consumer laws transferred whole or in part to the CFPB from other
fcderal regulatory agencies. I These enumerated statues do not specifically relate to the
CFPB's regulatory purview of non-depository institutions, such as National Consumer
Credit Corporations (hereinafter "non-depositories"). Title X, section 1024 of DoddFrank relates to the CFPB's supervision, rulemaking, and enforcement authority over
non-depositories. 2 This section explains that, to thc extent federal law permits the CFPB
and another federal agency to issue regulations, conduct examinations, or require reports
from non-depositories-the CFPB shall maintain exclusive authority to write rules, issue
guidancc, conduct exanlinations, or require repOlis regarding such non-depositories]
Accordingly, the CFPB could share Title X, section 1024's authority with another
agency, to the extent authorized by federal law. But as CRL's written testimony
illustrates, even where regulatory authority might be split between the Office of the
Comptroller of the Currency (OCC) and CFPB, H.R. 6139 contemplates a potentially
incongruent regulatory regime. That is, the OCC may approve non-depositories'
offerings of financial products that could also violate Dodd-Frank's provision against
unfair, deceptive, abusive acts or practices 4 Such a scenario would present a confusing
regulatory framework-resulting in the agencies facing off in federal court during
protracted and intense inter-agency litigation.
2) A good portion of your testimony focuses on the problems with payday loans and your
contention that H.R. 6139 would allow NCCCs to otTer pay day loans at a national leveL
The Dodd-Frank Wall Street Reform and Consumer Protection Act of2010 I002(l2), 12 U.S.c. 5481(l2).
'[dat 1024, 12 U.S.c. 5514.
3 Idal I024(d), 12 U.S.c. 5514(d),
4 I d. at 1031, 12 USc. 553 1.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00167
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.104
162
This is done even though the bill specifically prohibits NCCCs from offering a product
with a tenn of30 days or lcss-the typical tenn of traditional payday loans. Considering
this, and given that the acc has also stated its opposition to payday products and their
ability under the bill to approve or disapprove of products, why do you believe that HR
6139 will allow NCCCs to offcr pay day products on a national level? Either way, would
it not be simple to reiine the bill if needed to makc it clear that no payday advance
product could be offered by a NCCC?
RESPONSE: In the past, payday lenders have augmented their products so they would
fit within the letter of state law. We expect that payday lenders would do so in this case,
moving from a two-week loan teml to a loan tenn of32 days, for instance, in order to
avoid the reach of the CFPB. In addition, although the typical payday loan term today is
about two weeks, payday loans may be structured for varying durations, including tenns
of 31 days or more. Also, the Departmcnt of Defense, under the Military Lending Act,
defines a payday loan, in part, as having a teml of91 days or fewer. l lLR.6139's
prohibition of non-depositories offering financial products with a tenn of 30 days or
fewer would not prohibit charter holders from otTering payday loans with longer tenns.
Furthermore, Cash America-one of the nation's largest payday lenders-is a chief
proponent ofH.R. 6139. And Cash America's strong support for the legislation
substantiates the likelihood that chartered non-depositories would offer payday loans
nationwide, despite attempts to refine the bill with language prohibiting payday advance
products.
3) Do you believe that the currcnt patchwork of state laws and regulations allow for
underserved consumers across the country to have acccss to a sufficient range of credit
products? If not, what can be done to ensure that these options are increased?
RESPONSE: States are the traditional regulator of most small loan products, including
payday loans. In fact, state regulations of nonbanks have existed for over 200 years.
State regulations are at the ground level in the fight against predatory short-tcnn lending.
But H.R. 6139 would allow chartered non-depositories to offer payday loans in
jurisdictions that have either outlawed or substantially regulated such financial products.
The Pew Charitable Trusts recently released a survey that revealed, in part, two key
findings:
"[I]ffaced with a cash shortfall and payday loans were unavailable, 81 percent of
borrowers say they would cut back on expenses. Many also would delay paying
some bills, rely on friends and family, or sell personal possessions."
32 C.F.R. 232.3(b)(1)(j).
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00168
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.105
163
"[IJn states that enact strong legal protections, the result is a large net decrease in
payday loan usage." 6
As the research findings illustrate above, where payday lending is heavily regulated or
otherwise unavailable, consumers indicate by wide margins their preferences for
alternative means to meet cash shortfalls. Preferences to have increased access to a range
of payday advance products arc not supported by the evidence. But consumers should
have access to safe, affordable, and sustainable loans that reasonably assess their ability
to repay. Many lenders made little efforts to ofTcr consumers safc loans leading up to the
financial crisis-resulting in disastrous effects for many American households. Lenders
can meet underserved consumers' short-tenn credit needs by ensuring financial products
do not ensnare borrowers in financial-debt traps. Small-dollar lending serves consumers
best, for instance, with telms that are fully an10ltizing and have interest rate caps.
4) Do you think that depository institutions will provide in the near future an adequate level
of affordable, non-abusive credit products to most, or even a majority of underserved
consumers, many of whom cannot currently access mainstream financial products from
these same institutions?
RESPONSE: Market demand will dictate the extent to which depository institutions will
provide safe, affordable, non-abusive small-dollar credit products. All lending should be
done within the frameworks of strong consumer protection and institutional safety and
soundness.
5) Given the current state of affairs and ilie limited availability of small dollar, short-term
credit products that millions of underserved Americans need, the fact that these samc
underserved Americans carmot gain access to mainstream credit products offered by
depository institutions, and your stated opposition to H.R. 6139, what do you propose
that Congress do to ensure these consumers have an adequate range of credit options to
meet their needs?
RESPONSE: Considering the on-going innovative efforts of the financial marketplace,
sensible rules of the road must be established to ensure its safe operation for consumers.
Congress granted the CFPB ilie authority to make this happen. To ensure that
underserved consumers have access to an adequate range of credit options, Congress
should allow the Bureau to do its job in protecting American consumers from harmful
6 The Pew Charitable Trusts, Payday Lending in America: Who Borrows. Where They Borrow. and Why, July 19.
2012, http://www.pewstates.org/uploadedFi1es/PCS Assets/lOI2/Pew Paydav Lc.vding Report.pdf. Pew's
findings also revealed the results of a focus group that Pew conducted, in 2011, ncar Manchester, New Hampshire.
Borrowers mentioned the various strategies they used instead of payday loans, since storefront lenders were no
longer there. Responses included: "budgeting, prioritizing bills, pawning or selling belongings, [and] borrowing
from family members .... " !d. at 17.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00169
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.106
164
financial products, and allow states to continue to provide protections to their respective
residents.
1. H.R. 6139 would change disclosure of credit costs for all creditors, including NCCCs,
and use a more accurate disclosure instead of TIL A's APR disclosure for credit
extensions of one year or less. Other than this change, what other federal statutory or
regulatory changes does (he bill make that would subject NCCCs to provisions less
stringent than current fedcrallaw?
RESPONSE: Under H.R. 6139, chartered non-depositories would be subject to the
OCC's supervisory and rulcmaking authority-although the agency has no experience in
non-bank regulation. Leading up to the financial crisis, as a prudential regulator, the
OCC was primarily focused more on the safety and soundness of the financial institutions
it regulated-and less so on consumer protection. Ironically, it was the OCC's lack of
focus on consumer protection that led to the dismantling of the safety and soundness of
some of its regulated entities. Also during that time, many non-depository financial
institutions were engaged in reckless predatory lending with little oversight. The result
was an unleveled playing field between banks and nonbanks. In addition, these
institutions often targeted the most vulnerable consumers with financial products that
contained abusive loan tenns. Congress created the CFPB to correct such egregious
market failures, end unsustainable lending, and protect consumers from harmful financial
products and services. And Title X, section 1024 of Dodd-Frank, tasks the Bureau with
the specific power to supervise non-depositories and to level the playing field. This
authority should remain within the sole purview of the CFPB.
2. Does CRL feel that consumers will not be adequately protected on consumer financial
services matters by federal laws and regulations, and CFPB's regulatory, supervisory and
enforcement powers?
RESPONSE: Since having an appointed director for about 10 months, the CFPB has
begun exercising its full authorities granted by Congress, including launching its nonbank
program to supervise non-bank entities, such as payday lenders. 7 But it is important to
note that as the CFPB goes about making America's financial markets safe, and
protecting consumers from harmful financial products and services, the CFPB's efforts to
do so should not be intentionally undemlined or circumvented by those who would prefer
less consumer protection and regulatory oversight. The CFPB should be allowed to go
about its mission to protect American consumers from unfair, deceptive, abusive acts or
Prepared Remarks by Richard Cordray, Director of the Consumer Financial Protection Bureau, The Brookings
Institution, Jan. 5, 2012, http://www.brookings.edu!-/medialevents/20 121l!05%20cordray/Ol 05_cordray_remarks.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00170
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.107
165
practices. And if the CFPB fails to do so, then Congress should exercise oversight to
ensure that the CFPB does its job.
3. In your testimony, you express concern as to how CFPB and OCC will interact under
H.R.6139. What specific provisions cause problems and what sections, if any, prevent
CFPB from using its full set of powers \",ith regard to NCCCs?
RESPONSE: As indicated above, the enumerated consumer laws, listed under section
1002(12) of Dodd-Frank, specifically refcrs to the 18 ennmcrated consnmer laws
transferred whole or in part to the CFPB from other federal regulatory agencies. These
enumerated statues do not specifically relate to the CFPB's regulatory purview of nondepository institutions. Title X, section 1024 of Dodd-Frank relates to the CFPB's
examination, mlcmaking, and enforcement authority over non-depositories ..And section
3(d) states that such authority is exclusive to the CFPB to enforce federal consumer
financial laws, including any regulations thereunder, to thc extent federal law authorizes
the CFPB and another federal agency to issue regulations, guidance, or conduct
examinations regarding such non-depositories.
And so, the CFPB could share Title X, section 1024's authority with anotller agency,
where authorized under federal law. But as CRL's wTitten testimony illustrates, even
where regulatory authority might be split between the OCC and CFPB, H.R. 6139
contemplates a potentially incongruent regulatory regime. That is, the OCC may approve
non-depositories' offerings of financial products that eould also violate Dodd-Frank's
provision against unfair, deceptive, abusive acts or practices. Such a scenario would
present a confusing regulatory framework-resulting in the ageneies facing off in federal
court, during protracted and intense inter-agency litigation.
4. Does CRL believe that a large number of Ameriean eonsumers are unable to obtain the
eredit periodically need from traditional banking institutions (other than expensive
overdraft protection products) and ohtain credit from nonbank lenders, including
increasingly unregulated offshore Internet lenders?
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00171
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.108
RESPONSE: Payday lenders often erroneously state that there is a huge demand tor
their product. CRL's report, Phantom Demand, demonstrates that 76 percent of so-called
"demand" tor payday loaos comes directly from loan chuID----Df, consumers being forced
to take out additional payday loans in order to be able to aflord to pay back the original
166
loans The fact is there is a lot less demand for short-ternl loan products than meets thc
eye.
5. Your organization appears to opposc many of the short-tenn, small loan products otlered
by nonbank lenders. Please provide the Subcommittee with a detailed explanation of a
range of credit products that you believe can be offered on a commercially-viable basis
by nonbank lenders and a list of commercially-viable products that could be offered by
depository institutions, to meet the credit needs of underserved consumers?
RESPONSE: As noted earlier, much of the so-called demand for payday loans comes
directly from the lack of afford ability of the product, combined with a short-term, balloon
payment. A rangc of commercially viable credit products that can be offered to
consumers include, for instancc---{)verdraft lines of credit, payday loans that come under
36 percent APR cap, installment loans that come under a 36 percent APR cap, credit card
lines of credit.
Leslie Parrish and Uriah King, "Phantom Demand: Short-Term Due Date Generates Need for Repeat Payday
Loans, Accounting for 76% of Total Volume." Center for Responsible Leuding, July 9, 2009,
http://www.responsiblelending.orglpayday-Iendinglresearch-analysis!phantonl-demand-excc-summary-final.pdf.
8
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00172
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.109
167
Congressman Joe Saca
Financiallnstitutions & Consumer Crcdit Subcommittee Hearing
Examining Consumer Credit Access Concerns, New Products, and Federal
Regulations
Questions for the Record
Questions for Grovelta Gardineer, Deputy Comptroller for Compliance Policy, Office of
the Comptroller of the Currcncy
1) rfyou agree that so many Americans have serious credit access problems and you
do not like HR 6139's approach for addressing them, can you explain in detail how
the OCC believes these problems can be promptly and effectively resolved?
Response: Congress, in the Dodd-Frank Act, authorized the Treasury Department to
establish programs with depository institutions, community development financial
institutions, state and local governments, and others to encourage the provision of
low-cost, small-dollar loans to consumers, so as to create viable alternatives to
costlier loans. The oec believes such programs will provide a valuable mechanism
for supervisors and industry participants to collaborate on innovative approaches to
address the needs of underserved consumers and consumers who may have blemished
or limited credit history and, thus, limited access to traditional credit products.
The OCC provides guidance to the depository institutions that we supervise through a
variety of methods, including through the issuance ofOCC Bulletins and Advisory
Letters, by participating in industry conferences and forums, and through in person
meetings with bankers to discuss the depository institution's efforts to offer products
and services to underserved markets. This guidance and outreach establishes
expectations that depository institutions will offer financial products and services in a
safe and sound manner, and in compliance with consumer protection laws and
regulations. Additionally, the oec encourages depository institutions to offer
innovative and affordable financial products and services, as doing so will be
considered when the agency evaluates the institution's Community Reinvestment Act
(CRA) perfonnance.
2) In your testimony, you state that your opposition to HR 6139 is based in part by
your contention that the small-dollar, shorHenn loans which the proposed NCCCs
would be able to offer would be dependent on trapping consumers into repeated
credit transactions, causing a never-ending cycle of debt. Given the fact that many
of these products are authorized and regulated at a state level, do you believe that
the state regulators and legislatures that oversee the nonbank lenders offering these
products are failing to provide adequate consumer protection?
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00173
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.110
Response: The OCC does not have any data or infonnation that suggests that state
regulators and legislatures are not meeting their obligations with regard to consumer
protections.
168
3) Do you believe that it is realistic to expect that current depository institutions can
offer underserved consumers a variety of innovative, affordable, and non-abusive
loans on a widespread, commercially viable basis enough to meet the current
growing credit needs of many Americans? If so, why aren't these institutions
doing so now?
Response: The financial sector is designed to accommodate multiple lending business
models, which includes both depository and non-depository entities, to meet the credit
needs of the market. Although each depository institution'S Board of Directors and
executive management team havc discretion in terms of the products and services that
are offered to the ptlblic, the choices made must still be consistent with the
institution's approved business plan, its risk management capacities, and the expertise
of its personneL Moreover, the Board and management must consider the
competition to be 'lced before offering new products or services. The OCC requires
that the national banks and Federal savings associations which it supervises provide
financial products and services to their customers in a safe and sound marmer and in
compliance with consumer protection laws and regulations. Banks and Federal
savings associations that offer credit products, including small-donar loans, may
require tbat customers have existing depository relationships with them as a condition
of extending credit. Many consumers choose to not have traditional banking
relationsbips or deposit accounts, opting instead for products offered through nondepository entities, including retail outlets.
4) Your testimony states, on one hand, that most ofthe small dollar, short-term credit
products offered by nonbank lenders are inherently abusive products and should
not be allowed. However, it also states that where these products are offered, state
officials and the CFPB have adequate authority to regulate tbese products and
services and the companies that provide them. How do you reconcile these two
seemingly conflicting views?
Response: Our supervisory experience with products such as payday loans, tax
refund anticipation loans (RALs), and automobile title loans, is that tbey are based on
a business model that is not sustainable, as they often reflect excessive fees, repetitive
use, high default rates, and failed efforts at compliance with applicable laws and
regulations. Because these products frequently reflect abusive lending practices, the
OCC has clearly and consistently reminded the institutions that it supervises of the
compliance, legal, and rcputation risks posed by these products. For those entities
that choose to offer these products, the OCC makes clear that they must do so in a
safe and sound, and legally compliant, marmet.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00174
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.111
The OCC believes that Congress provided sufficient statutory authority to the
CFPB so that it can carry out its mission of protecting all consumers. The CFPB is
authorized to issue rigorous, uniform, and nationally-applicable protection
standards for consumer financial products and services, without regard to whether
these products and services are offered by banks, nonbanks, or Federal savings
associations, nor with regard to whether the institutions are supervised by Federal
or state regulators.
169
Questions for the Record from Rep. Blaine Luetkemyer (M0-9)
Subcommittee on Financial Institutions, Committee on Financial Services,
U.S. House of Representatives
Hearing held on July 24, 2012, entitled "Examining Consumer Credit Access Concerns,
New Products and Financial Regulations"
Questions for Grovetta Gardineer, Deputy Comptroller for Compliance Policy, Office of
the Comptroller of the Currency
I) Does OCC agree that tens of millions of Americans, as many as half of all
families, cannot obtain small, short-tenn unsecured personal loans from the federal
depository institutions you regulate and from state chartered depositories when they
need them, and who must therefore periodically rely on credit products from state
licensed nonbank lenders? If not, do you have empirical data showing a lack of
need?
Response: The OCC recognizes the importance of providing underserved consumers
greater access to innovative and affordable financial products and services. The OCC
does not collect data on this type of lending for national banks and Federal savings
associations, the depository institutions that we supervise. Moreover, we are unable to
comment on the activities of institutions or entities that we do not supervise.
2) Your testimony states that OCC has encouraged depositories "through many routes"
to offer innovative and affordable financial products and services. What have these
"routes" !:cen, and why don't most depositories offer such products? For the
institutions that do offer these products, why aren't the most underserved consumers
given access to thcse products?
Response: The OCC provides guidance to the depository institutions that we supervise
through a variety of methods, including by issuing OCC Bulletins and Advisory
Letters, by participating in industry conferences and fonlIDs, and through in-person
meetings with bankers to discuss the depository institution's efforts to offer products
and services to underserved markets. This guidance and outreach establishes
expectations that national banks and Federal savings associations will offer financial
products and services in a safe and sound manner, and in compliance with consumer
protection laws and regulations. Additionally, the OCC encourages these depository
institutions to offer innovative and affordable financial products and services, as
doing so will be considered when the agency evaluates the institution's Community
Reinvestment Act (CRA) perfonnance.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00175
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.112
Although each depository institution's Board of Directors and executive management

team have discretion in tenns of the products and services offered to the public, the
choices made still must be consistent with the institution's approved business plan, its
risk management capacities, and the expertise of its personnel. Moreover, the Board
and management must consider the competition to be faced before offering new
products or services. Banks and Federal savings associations that offer credit
products, including small-dollar loans, may require that customers have existing
depository relationships with them as a condition of extending credit. Many
170
consumers choose to not have tnlditional banking relationships or deposit accOllllts,
opting instead for products offered through non-depository institutions, including
retail outlets.
3) Does OCC believe that CFPB has ample statutory authorities Illlder federal law to
adequately protect Illlderserved consumers from abusive lending practices by
nonbank lenders? If not, what regulatory authority has Congress failed to provide?
Response: The OCC believes that Congress provided sufficient statutory authority
to the CFPB so that it can carry out its consumer-protection mission. The CFPB is
authorized to issue rigorous, uniform, and nationally applicable protection
standards for consumer financial products and services, without regard to whether
these products and services are offered by banks, nonbanks, or Federal savings
associations, nor with regard to whether the institutions are supervised by Federal
or state regulators.
4) Does OCC believe that consumers clearly Illlderstand the calculation and meaning
of APR for short-term loans (one year or less)? Do you disagree that an APR
disclosure can be confusing and distort what many people will think is the actual cost
of a short-term loan of a year or less? Given that some lenders charge additional
fees not included in APR calculations, are APRs somewhat misleading? Are all
credit alternatives including overdraft fees charged by OCC-regulated banks,
required to be disclosed in APR terms?
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00176
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.113
Response: Under current consumer protection laws and regulations, depository

institutions are required to disclose all fees associated with the extension of credit.
Consumer loan disclosures are complex and may be difficult for the average consumer
to understand. The CFPB has rulemaking authority for the Truth in Lending Act
(TILA). TILA promotes the informed use of credit by consumers, including by
requiring that creditors make accurate disclosures of the cost and terms of consumer
loans. The CFPB is in the process of updating Regulation Z, the rule which
implements TILA, and additionally, is developing new disclosure statements intended
to provide consumers with the ability to compare credit products offered by different
insti tuti ons.
171
Exhibit 1
STATEMENT of
WILLIAM M. ISAAC
Former Chairman, Federal Deposit Insurance Corporation,
July 24,2012
I commend the subcommittee for conducting this hearing on the important issue of access to credit for
cash-strapped consumers and small businesses. I wish I were able to participate in the hearing in person
and would appreciate my written statement being made part of the record.
I am former Chairman of the Federal Deposit Insurance Corporation; Senior Managing Director & Global
Head of Financial Institutions for FTI Consulting; and Chairman of Fifth Third Bancorp. The opinions I
express are my own and do not necessarily reflect the views of these organizations.
I appreciate Congressmen Luetkemeyer and Baca taking the time to fashion an innovative approach to
increasing the flow of small loans to individuals and businesses. As reported in the "findings" of their
bipartisan bill, studies by the FDIC and others "have shown that roughly half of all American families ...
are literally living paycheck-to-paycheck." I think we can all agree that we need more education in
financial literacy, and we need more stable sources of credit.
I believe the proposed Consumer Credit Access, Innovation, and Modernization Act's creation of
optional federal chartering for non-bank lenders is an innovative approach that could yield many
benefits. It's difficult for me to see a downside to the bill.
The legislation would create an optional federal charter for non-depository lenders at the Office of the
Comptroller of the Currency, which has chartered national banks for 150 years. The legislation instructs
the Comptroller to focus on the "true cost" of the loan product rather than the annual percentage rate
(APR) and facilitates the offering of short-term lending products best suited to the needs of borrowers,
beyond payday lending.
I have long been critical of interest-rate ceilings that restrict or effectively prohibit short-term personal
loans from banks and non-bank lenders. While the APR provides useful information to consumers when
comparison shopping for loans, it is inappropriate to use it to cap interest rates on short-term lending.
Hearing about a 390% APR for a payday loan, for example, is at first blush jarring. But after thinking
about it more carefully, one recognizes the value proposition. The APR on a payday loan is much lower
than the APR on a typical fee for a bounced check or for a late mortgage or credit card payment, or the
fee for getting your electricity turned back on after it has been cut off due to late payments. The loan
fee is definitely much less than the lost income when you can't get to work because you can't afford to
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00177
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.006
get your car repaired. These are typical of the choices facing customers who take out a short-term loan.
172
The plain truth is that tens of millions of people from all walks of life decide their best option is to do
business with non-bank, short-term lenders. The terms are very easy to understand - you borrow $200
and you pay back $230 two weeks later. Critics claim this amounts to predatory lending, a charge I don't
understand. The loans are unsecured and if you default, there is not much the lender can do except not
grant another loan. The lender cannot evict you from your house or take your car. It's not economic for
the lender to even file a collection suit.
The legislation addresses directly the criticism that payday loans are never really repaid - just renewed
over and over. I believe this criticism is blown out of proportion, particularly in comparison to other
types of borrowing. The high APRs and short maturities on payday loans make it impossible to keep the
rollover game going for very long, in contrast to credit card and other revolving debt.
In any event, to the extent rollover loans are a problem, it is largely because state regulatory barriers
effectively prohibit lenders from offering borrowers more suitable options, such as installment loans,
which most lenders would very much like to do. As John Berlau ofthe Competitive Enterprise Institute
noted in a recent paper, "In California, a nonbank lender can make a payday loan in the maximum
amount of $300 or an installment loan in the minimum of $2,500. This leaves a big gap in the middle."
The Luetkemeyer-Baca legislation will help bridge this gap by allowing safe, regulated and innovative
loans to flow across state Jines and benefit consumers and small businesses. It will do so without
exposing taxpayers to any risk, as these federally chartered and regulated, short-term lenders will be
required to raise their capital and funding entirely from private sector sources without the benefit of any
federal guarantee.
The financial record of non-bank short-term lenders over recent decades has been impressive in good
times and bad. Short-term lending is relatively risky, but the risks are ameliorated due to diversification
in the portfoliO, and the risks are priced into the fee structure. It is quite feasible to maintain high loan
loss reserves and strong capital against short-term loans and achieve good returns if the short-term
lender is an efficient operator.
Reducing unnecessary regulatory barriers will increase competition for bank and non-bank lenders and
will foster sustainable sources of credit for consumers and small businesses. This will in turn stimulate
economic growth and job creation. The Luetkemeyer-Baca bill appears to be an important step in the
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00178
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.007
right direction and deserves a fair hearing and serious consideration.
173
Responses of John Munn, Director, Banking and Finance, State of Nebraska
Department of Banking and Finance (October 3,2012)
Congressman Joe Baca

Financial Institutions & Consumer Credit Subcommittee Hearing - Examining Consumer Credit
Access Concerns, New Products, and Federal Regulations
Questions for the Record
Questions for John Munn, Director, Banking and Finance, State of Nebraska Department of
Banking and Finance
1) Do you agree that there is a serious 'credit crisis' for underserved consumers
throughout the country, or at least a major public policy problem because there is
a clear lack of credit alternatives for millions of Americans as all major studies
appear to indicate? If so, what are you and other state banking officials doing to
address this problem?
I agree that the ability to provide a broad ronge of consumers with sustainable credit is an
ongoing challenge for the financial services industry. Addressing this need requires increased
understanding the complex companents of this problem. As the FDIC's most recent National
Survey of Unbanked and Underbanked Households notes,
"Different subgroups among unbanked and underbanked households have different
characteristics and varying levels of demand for banking services. Understanding these
differences could lead to the development of products and strategies that more
effectively engage these households."l
Clearly, this must be an ongoing effort by all stakeholders. However, as the recent financial
crisis iIIustrotes, credit that is not sustainable and not backed by a sound infrastructure of
oversight and consumer protection ends up creating a much larger problem.
State regulators continue to work with our regulated entities, other locol stakeholders, and
federol regulators to explore avenues for expanding credit availability responsibly. There is no
"one size fits all" solution to this problem, and banks and credit unions have explored - and
continue to explore - new avenues for serving underserved borrowers.
A few years ago, the FDIC launched a Small Dollar Loan Program. Institutions from across the
country participated in this initiative, which sought to support banks' efforts to offer short term
loans that provided an affordable alternative to higher cost products. Loan offered under this
product were for $2,500 or less, with a minimum term of 90 days, and were capped at 36
percent APR. Underwriting requirements and pracesses were streamlined.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00179
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.114
12011 FDIC National Survey of Un banked and Underbanked Households (September 2012) at 6.
174
In addition to offering small dollar loans, banks are offering products specifically designed to
help the underserved improve their financial candition to a point where they are not reliant on
other, more castly sources af short term credit. Banks have developed loons where the proceeds
are deposited into an accaunt at the bank. The money never leaves the bank. Every month the
payment is tronsferred automatically from the deposited money at the bank, to the loan
account as a payment. Over the course of the year, a $500 loan may be paid oft and the loan is
reported as "Paid Satisfactory" to the credit bureaus. The money is then able to be used at the
discretion of the borrower, with the idea that they have now learned how to build wealth, and
have a better credit rating in the process. The money can be used to payoff a pay day loan, and
perhaps then the individual would qualify for a credit card which is considerably less costly than
the pay day loan.
-As the example above illustrates, unlike payday lenders, banks wi/! report credit history to the
credit reporting agencies. This provides customers an opportunity to improve their credit history
over time, making it easier for them to access a broader range of affordable credit products.
Finally, state regulators have worked with regulated institutions who seek to make a concerted
effort to reach more underbanked communities and individuals with the placement of branch
locations, multi-lingual staff and materials, and community outreach.
2) Millions of underserved consumers who lack adequate local credit alternatives are
obtaining the credit they need, often at exorbitant prices, from unregulated
offshore internet lenders. Given this, shouldn't we be focusing on ways to better
provide credit options in Nebraska and other states, including access to internet
loans from regulated, domestic lenders, especially given both the problems with
rogue offshore operators and the growing trend of handling financial matters via
the internet?
Continuing to develap responsible ways of expanding credit availability is important. As your

question notes, the ubiquity of the Internet cannot be ignored. In the area of financial services,
the Internet has brought greater efficiency and flexibility, but it has also, in certain respects,
created a new avenue for skirting the rules and avoiding accountability that is so necessary in
providing financial services. As I testified during the hearing, certain states, including my home
state of Nebraska, have identified this as a concern and have, accordingly, placed certain rules
and restrictions on internet transactions.
3) In your testimony, you state that Congress has only established federal charters
when there is a compelling public purpose. The current economic climate, the
sustained high unemployment, and the housing crisis have only made things
harder on underserved communities and families. Recent studies have shown that
more and more families are living paycheck to paycheck. In June, the Federal
Reserve said the growing credit divide is one of the biggest factors in our slow
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00180
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.115
175
recovery. Do you not agree that the need for affordable, safe credit, especially in
this climate, is a compelling public purpose?
I agree that the need for affordable, safe credit is a challenge for policy makers. However, this is
a complex problem driven by multiple factors, and I do not believe that a federal charter that
undermines state authority is the right solution. The current economic environment and slow
recovery has made managing personal finances more challenging for many families. However,
in these cases, this is not solely or necessarily an access to credit problem. This is a problem
with the economy. Greater access to credit for people living paycheck to paycheck might only
increase the harm to consumers and generate more consumer protection issues.
I and my fellow state banking commissioners would welcome the opportunity to work with
Congress, federal regulators, and other stakeholders to identify and implement appropriate
solutions.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00181
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.116
176
Questions for The Honorable John Munn, Director, Banking and Finance, State of Nebraska
Department of Banking and Finance, on behalf of the Conference of State Bank Supervisors
1) Do you believe that there is a large number of underserved consumers in Nebraska
who need, but are unable to obtain, small, unsecured personal loans from
traditional banking institutions and who lack adequate credit alternatives? Is so,
why are banks generally not making such loans, and why are other adequate
alternatives not available from nonbank lenders?
Our Department conducts consumer outreach and education throughout the state and I, as
Director of the Department, spend a great deal of my time meeting with regulated entities and
other stakeholders throughout the state. From these activities, I know that there are
underserved consumers in Nebraska. However, with 281 bonks and credit unions in the state
(including close to 200 state-chartered bonks and credit unions) and 524 non-bank lenders
(including payday lenders, check cashing companies, installments lenders, sales finance
companies, and mortgage lenders), Nebraska has a diverse range of lenders to meet the needs
of the state's 1.8 million residents.
Cansumers in Nebraska have access to praducts similar ta those that are covered by H.R. 6139.
However, policy makers in Nebraska have determined that certain protections are needed to
help ensure that such products are not prone to abuse and that borrowers are nat set up for
failure. Specifically, as I testified, payday loans are limited to no more than $500, cannot exceed
34 days in loan term, cannot have fees in excess of $15 per $100, and borrowers are limited to
no more than two outstanding loans at a time, with no rollovers.
Poor credit histories and/or a lack of credit history can be one reason that these consumers have
limited access to sustainable credit. However, institutions that my department supervises are
aware of this need and have sought to expand such lending. As I mentioned in my testimony,
several credit unions in Nebraska offer a "QuickCash" product, which is small-dol/ar loan
product, with a maximum APR of 18%, 60 days to payoff the loan, no prepayment penalty and
no credit report required to qualify.
2) What types of small, short-term loan products are available from bank and
nonbank lenders to underserved consumers in Nebraska? Please advise as to how
many of each category of lenders are licensed to make each type of loan, and what
applicable limitations or requirements apply to the term of such loans as well as
the total number and dollar volume for each such category of loans broken down
by whether the loan was made by a bank or nonbank lender. Please note what
limitations, if any, apply to making such loans via the Internet. Please also advise
as to the percentage of underserved consumers who are now using offshore
lenders. Please have CSBS provide the Subcommittee with the same type data
requested for other states.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00182
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.117
177
The availability of small, short-term loan products in Nebraska is generolly a function of
qualification. In rural Nebraska, where personal lending is most often delivered by community
banks and credit unions, the qualification is usually that of "being known" in the community. In
these situations, credit bureau reports are often not a good source of information on an
applicant's creditworthiness. The difficulty of "being known" in Nebraska's larger communities
is a primary reason that most of the payday lenders we license are located in more heavily
populated areas of the state. For lenders other than payday lenders in these areas, more
reliance can be placed upon an applicant's credit report.
It would be extremely difficult to aggregate personal loan data for Nebraska because, in
addition to the numbers of institutions reported in response to your first question, many banks
operate in Nebraska under charter from other states (e.g., Bank of the West) or as branches of a
national banks chartered outside of Nebraska (e.g., Wells Fargo Bank, NA). As ta the term of
loons, Nebraska payday loans may not exceed 34 days; longer personal loon terms are
commonly available. I cannot think of a method for identifying cansumers who are now using
offshare lenders, underserved or otherwise. The only time that we are aware of this activity is
when a Nebraskan complains to us that their identity was stalen in the process of using the
Internet to connect to an offshare lender or if an offshore lender continues to charge a
Nebraskan's checking account electronically after a payday loan is repaid in full.
Neither I, my department, nor CSBS has a 50-state database with the state-specific information
for other states. While it does not fully answer your question, I am attaching on excerpt from
the CSBS Profile of State-Chartered Banking, which provides some information abaut the types
of non-bank lenders licensed by the various states. CSBS stoff would be happy to work with you
and your stoff to help gather the data requested. please contact Margaret Liu (mliu@csbs.orq;
202. 728. 5749) at CSBS if you or your staff would like to work together on gathering this
information.
3) In their respective testimonies, OCC and the Center for Responsible Lending
essentially say that short-term, small-dollar products are inherently abusive and
should not be allowed to be offered to underserved consumers. Does CSBS agree
with this statement?
As on organization, the Conference of State Bonk Supervisors has not token a position on
whether short-term, small-dollar products are abusive or whether such products should be
offered to underserve consumers. Various states, through their elected legislatures, have mode
decisions about whether and how such products should be mode available within those states.
State regulators, including CSBS members, are then responsible for implementing and enforcing
those state requirements. CSBS believes that this decision making should remain at the state
level.
4) You have stated the H.R. 6139 provides virtually no product limits and controls but
the legislation contains significant ones, including the prohibition of loans with
terms of 30 days or less and ability-to-repay and prepayment penalty provisions.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00183
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.118
178
Do you recognize that this legislation gives DCC full regulatory authority over these
federally-chartered nonbank lenders, including the power to approve all loan
products, and also subjects the institutions to federal consumer financial
protection laws and CFPB's full regulatory powers?
The plain language af H.R. 6139 gives the acc regulatory authority over these federally
chartered nonbank lenders. However, the product approval provisions - which effectively deem
the product approved unless the acc takes affirmative action - provide little in the way of
consumer protections. Regarding the question of H.R. 6139 and the CFPB, entities that might be
eligible for this new proposed federal charter already are within the CFPB's jurisdiction.
However, under current law, the CFPB's regulatory authority complements, without supplanting,
existing state regulation and oversight.
5) Your testimony expresses concerns that state and federal regulatory partnerships
would be irreparably damaged by this legislation despite the fact that it includes a
major role for states by providing state attorneys general investigative and
enforcement power and preserves all of extensive enforcement authorities of
state officials under federal consumer financial protection laws. The legislation
also requires DCC to consult and coordinate activities with state officials, including
state bank supervisors. How does his hamper state and federal regulatory
partnerships, especially when CFPB enforces the extensive array of federal
consumer financial protection laws and it has already established strong working
relationships with state regulators?
The bill undermines state authority and state-federal collaboration in several significant ways.
First, companies chartered under this biff would be able to avail themselves of the same
preemption to which national banks are entitled. Second, the biff explicitly preempts state laws
such as licensing laws, which are a key means for states to hold such companies accountable for
their business practices. Finally, the legal construct underpinning the CFPB is based on statefederal collaboration: in addition to providing that federal law provides a floor not a ceiling to
state consumer protection, Title X of Dodd-Frank requires not just consultation and coordination
with state regulators, but it reflects an overall recognition of the important role of state
regulators in overseeing financial services providers in their states.
6) Given your opposition to H.R. 6139, what solutions, if any, do you propose to
ensure that Americans in need can quickly obtain an adequate variety of
affordable credit alternatives?
Our members work daify with their state-chartered and state-regulated financial institutions to
explore means of expanding access to affordable credit. We recognize that community-based
institutions are central to meeting the credit needs of local communities, and we are sensitive to
the challenging business environment that such institutions, particularfy community banks, face
currently.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00184
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.119
179
To enhance these institutians' ability ta serve the credit needs of a broad segment of their
communities, our institutions need a regulatory environment that supports such lending - an
environment that balances regulation and comman sense and that encourages innovation and
creativity, while still adhering ta robust safety and soundness and compliance regulatian. We
wark constantly with our federal regulatory partners as well as our regulated institutions to
achieve this balance.
VerDate Nov 24 2008
16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00185
Fmt 6601
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
76120.120
VerDate Nov 24 2008

16:07 Mar 28, 2013
fIB
Profile of State Chartered Banking
Jkt 076120
Institutions Supervised - Part I
PO 00000
Frm 00186
Sfmt 6601
180
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.121
VerDate Nov 24 2008

16:07 Mar 28, 2013
~ CONFERENCE OF STATE BANK SUPERVISORS
Profile of StatE: Chartered Banking
Jkt 076120
Institutions Supervised ... Part I
PO 00000
Frm 00187
Sfmt 6601
181
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.122
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
Profile of State chartered Banking
Institutions Supervised- Part I
PO 00000
Frm 00188
Sfmt 6601
182
Fmt 6601
K:\DOCS\76120.TXT
NR: Not Reported.

N/A: Not Applicable.
The following state banking departments did not participate in this chart: Guam, New Mexico,
Virgin Islands.
TERRI
IDoes not include the assets of one bank that voluntarily surrendered its license on 1/4/12 and
did not submit a 12/31/2.011 call report.
2Exdudes MIB
3Includes $2,361,819 that represent assets of unit of commercial banks identified as
international banking entities authorized to conduct banking business with foreign people only.
4Represents total assets of international bank entities, including $2,361,819 that also are
included in the commercial banks total assets.
76120.123
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
ell
Institutions Supervised - Part II
PO 00000
Frm 00189
Sfmt 6601
183
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.124
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
Institutions Supervised - Part II
PO 00000
Frm 00190
Sfmt 6601
184
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.125
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
91
Institutions Supervised
PO 00000
Frm 00191
Sfmt 6601
185
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.126
NR: Not Reported.

Virgin Islands.
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
6tI
Institutions Supervised - Part III
PO 00000
Frm 00192
Sfmt 6601
186
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.127
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
81
Il')stitutions Supervised- Part III
PO 00000
Frm 00193
Sfmt 6601
187
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.128
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
8fB
Institutions Supervised - Part III
PO 00000
Frm 00194
Sfmt 6601
188
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.129
NR: Not Reported.

N!A: Not Applicable.
Virgin Islands.
lPrivate trust company
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
III
Institutions
Supervis~d
-PartIV
PO 00000
Frm 00195
Sfmt 6601
189
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.130
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
8IB
cONFERENCE OF S"fATE BANK SUPERVISORS
Institutions Supervised- Part IV
PO 00000
Frm 00196
Sfmt 6601
190
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.131
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
CO'NFI!RI,Nc:e OF STATE BANK SUPERVISORS
PO 00000
Frm 00197
Sfmt 6601
191
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.132
NR: Not Reported.

NjA: Not Applicable.
Virgin Islands.
lExamination Authority
2DFI does not supervise all licensees under the holding company.
3Assets of 2 companies not included as they were not found.
4Includes traditional BHes and the parents of Industrial Banks, exempt under the BHe Act but
BHes under State statutes.
5Includes traditional BHes and Industrial Bank parent companies.
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
M~CONFIERI'N(:E OF STATE BANK SUPERVISORS
Institutions Supervised - Part V
PO 00000
Frm 00198
Sfmt 6601
192
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.133
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
(II CONFERENCE OF STATE BANK SUPERVISORS
PO 00000
Frm 00199
Sfmt 6601
193
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.134
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
15
PO 00000
Frm 00200
Sfmt 6601
194
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.135
NR: Not Reported.

NjA: Not Applicable.
Virgin Islands.
1 Registration Fee
2Included in Licensed Lenders total
VerDate Nov 24 2008

16:07 Mar 28, 2013
PTofile of State Chartered Banking
Jkt 076120
Institutions Supervised - Part VI
PO 00000
Frm 00201
Sfmt 6601
195
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.136
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
fBI
Institutions Supervised - Part VI
PO 00000
Frm 00202
Sfmt 6601
196
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.137
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
Institutions Supervised- Part VI
PO 00000
Frm 00203
Sfmt 6601
197
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.138
NR: Not Reported.

Virgin Islands.
lPawnshops are directly licensed and regulated by municipalities. However, the Division is
responsible for approving each city and town's pawnbroker regulations, including the
maximum interest rates.
2Domestic Insurance Companies 167, Foreign Insurance Companies 1464, HMOs 24, BCBS of
Michigan, Resident Agencies 6,979, Individual Resident Agents 54,120, Non-Resident Agencies
8,595, Individual Non-Resident Agents 135,975, Solicitors 1,323, Resident Surplus Lines
Agencies 136, Individual Resident Surplus Lines Agents 329, Adjusters for the Insured 270,
Non-Resident Surplus Lines Agencies 466, Individual Non-Resident Surplus Lines Agents
1,237, Third Party Administrators 390, Insurance Adjusters 9,257, Insurance Counselors 931
3There are 1773 companies of which 644 are domestic.
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
~ CONFERENCE OF STATE BANK SUPERVlSORS
Profile of State Chiutered Banking
Institutions Supervised - Part VII
PO 00000
Frm 00204
Sfmt 6601
198
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.139
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
Institutions Supervised
Part VII
PO 00000
Frm 00205
Sfmt 6601
199
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.140
VerDate Nov 24 2008

16:07 Mar 28, 2013
CONFI,R!,NC;eOF STATE BANK supeRVIsORS
Profile of State Chartered 6anking
Jkt 076120
Institutipns Supervised-ParfVn
PO 00000
Frm 00206
Sfmt 6601
200
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.141
NR: Not Reported.

N/ A: Not Applicable.
The following state banking departments did not participate in this chart; Guam, New Mexico,
Virgin Islands.
lThe Department is not required to approve TSPs, so this figure is only an estimate based on
information currently in our records.
2Excludes Securities Representatives (88,528), Investment Advisor Firms (88), Investment
Advisor Representatives (2,049) and Issuer Agents (34).
3Supervised by the Securities Bureau, a division of the Department
4Includes non-bank servicers only.
5Affiliates of state-chartered institutions.
VerDate Nov 24 2008

16:07 Mar 28, 2013
8jJ CONFERENCE OF STATE BANK SUPERVISORS
Jkt 076120
Institutions
Sup~rvised .... Par(VIII
PO 00000
Frm 00207
Sfmt 6601
201
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.142
VerDate Nov 24 2008

16:07 Mar 28, 2013
Profile of State Chattered Banking
Jkt 076120
Institutions Supervised - Part VIII
PO 00000
Frm 00208
Sfmt 6601
202
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.143
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
Institutions Supervised- Part VIII
PO 00000
Frm 00209
Sfmt 6601
203
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.144
NR: Not
Virgin Islands.
1ean reduce to $250,000
2Check seller bond is $100,000. For a money transmitter, a corporate surety bond issued by a
bonding company or insurance company authorized to do business in this state and approved
by the Department must accompany an application for a money transmitter license, the bond
is $50,000, with an additional principal sum of $5,000 for each location, in excess of one, up
to a maximum aggregate of $250,000.00.
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
I!lsti.tutlc:ms Supervised3$lk minimum bond, max is $500k. Total Net Worth must be no less than $lk.
PO 00000
Frm 00210
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
$100,000
9Minimum Bond = $25,000; Net Worth Minimum
lOIn Louisiana, Consumer Finance Companies are the same as Licensed Lenders.
"Consumer Financial Services Licensees 16, Credit Card Licensees 2, Motor Vehicle Installment
Sellers 1,661, Motor Vehicle Sales Finance Licensees 628, 1st Mortgage Brokers, Lenders,
and Servicers 597, 2nd Mortgage Brokers, Lenders, and Servicers 218, Premium Finance
Licensees 61, Mortgage Loan Originators 4,560
l2$100M bond or audit.
131ncluded in total for Licensed Lenders
14The department is registering check cashers under a law that became effective 1/1/09.
15Consumer Finance Companies are Consumer Discount Companies covered under the
Consumer Discount Company Act (7 p.s. 6201 et seq.).
l6Consumer Discount Companies covered under the Consumer Discount Act (7P.S. 6201 et
seq.) must provide a $5M bond for each place of business. However, after a license has been
held for three continuous years, such bond(s) shall not be renewed or refiled unless the
Secretary of Banking has reason to believe such bond is necessary.
17Registration Fee
lSAnd a $1,000,000 net worth
19Inciuded in money transmitters
20Varies
21lncludes money transmitters, currency exchanges and check cashiers/payday lenders
22$5,000 Bond/$5,000 Net Worth
23$10,000 Bond for 1st location, then $5,000 each/$100,000 Net Worth.
24$25,000 Bond/$10,000 Net Worth
204
Fmt 6601
76120.145
4$500k net worth requirement

sInciudes Regulated Lenders/Finance Companies (409) and Assignees (6).
6Minimum $30,000 in liquid assets required for Consumer Finance Companies, Payday Lenders
and Title Lenders.
7Regulated & Industrial loan licensees
8Check cashers are 617 companies in 1,284 locations.
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
Institutions Supervised - Part IX
PO 00000
Frm 00211
Sfmt 6601
205
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.146
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
till
CONfERENCE OF STATE BANK SUPERVISORS
PO 00000
Frm 00212
Sfmt 6601
206
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.147
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
8:iS,CONFERENCE OF STATE BANK SUPERVISORS
PO 00000
Frm 00213
Sfmt 6601
207
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.148
NR: Not Reported.

Virgin Islands.
lState law authorizing payday lending expired on July 1, 2010.
2Start-up requirements vary depending on type of lender.
3Department has prohibition laws on payday lending.
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00214
Institutions Supervised - Part XX

4Ucensed Mortgage Brokers/Lenders excluding Mortgage Originators,
Sfmt 6601
5Mortgage banker licensees

6In Louisiana, Licensed Lenders are the same as Consumer Finance Companies.
7943 Payday Lenders are also Consumer Finance Companies (or Licensed Lenders) and
included in 1,808 licensees.
8Includes Payday and Title Lenders
9Licensed Lenders, include Installment Sellers and Sales Finance Companies, which are
covered under the Motor Vehicle Sales Finance Act (63 P5 24 et seq).
1DPremium Finance Companies
l1Refer to Title Lenders
12Registration Fee
13Payday lenders can be licensed in Vermont as a licensed lender but would have to observe
the state's usury ceilings of a maximum of 18%. None have applied as of December 2011.
Payday lenders would also have to observe Vermont's money servicers/check casher law
which states "No licensee shall agree to hold a payment instrument for later deposit. No
licensee shall cash or advance any money on a postdated payment instrument:'
14Mortgage Lenders
K:\DOCS\76120.TXT
1sIf annual originations are between $0 and $3MM, minimum bond is $100,000. If annual
originations are between $3MM and $10MM, minimum bond is $150,000. If annual
originations are over $10MM, minimum bond is $250,000, If Lender acts only as a Servicer,
minimum bond is $200,000. A bond of $25,000 is required for each additional licensed
location.
15$5,000 Bond per location/$50,000 Net Worth
208
Fmt 6601
TERRI
76120.149
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
Institutions Supervised - Part X
PO 00000
Frm 00215
Sfmt 6601
209
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.150
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
f:Ij CONFERENCE OF STATE BANK SUPERVISORS
Profile of state Chartered Banking
PO 00000
Frm 00216
Sfmt 6601
210
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.151
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
81
PO 00000
Frm 00217
Sfmt 6601
211
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.152
NR: Not Reported.

Virgin Islands.
'Business and Industrial Development Corporations
2S usiness and Industrial Development Corporation and Uninsured Bank
3Mortgage Lenders and Brokers: 662; Mortgage Loan Originators: 1,341
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00218
Sfmt 6601
K:\DOCS\76120.TXT
TERRI
7Indudes Investment Advisors Firms as defined by the Idaho Uniform Securities Act of 2004,
Section 30-14-202, subsection 15.
"Includes Collection Agencies (641), Credit Repair Companies (9), Debt Buyers (97), and
Endowed Cemeteries (12). Excludes Collection Agents (43,426).
9Check Printers, Sellers or Distributors (13) are required to post surety bond of no less than
$10,000 (205 ILCS 690/25). Non-Financial holders of Automated Teller Machines (764) are
required to register with the Department, but are not required to post any Bond or pay fees.
lODebt Management Companies
11Includes 252 First Lien Mortgage Lenders and 83 Subordinate Lien Mortgage Lenders.
12Mortgage banker registrants-86; mortgage loan orlginators-l,497; closing agents-67
13lncludes 1,760 Notification Filers (Consumer Credit Sellers), 12 Bond for Deed Escrow Agents
[$10,000 bond or $25,000 NW required], 73 Repossession Agents, and 12 Repossession
Agencies [$1,000,000 bond required]. The department also regulates consumer loan brokers,
but doesn't currently have any licensed.
14Debt collectors & third party servicers
15Investment Advisors 11,500, Securities Agents 132.000, Debt Management Companies 40,
Living Care Facilities 40, BID COs 2
16Motor Vehicle Sales Finance-181; Insurance Premium Finance-51; Consumer Loan Brokers19
17Consumer Loan Brokers
18Credit Repair - License
19Investment advisors, supervised by the Securities Bureau
2oBond or Net Worth requirement
212
Fmt 6601
76120.153
48 - Escrow depositories; 67 - Mortgage servicers; 133 - Mortgage loan originator companies

(MLOCs); 803 - Mortgage loan originators (Number does not include MLOC branches)
5Escrow Depositories $50k net worth requirement; $100k escrow depository bond
requirement. Mortgage servicers -No net worth or bonding requirements; MLOs and MLOCs No net worth or bonding requirements.
6Surety Bond
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
PO 00000
Frm 00219
21Collection Agencies
22Credit Counselors are institutions covered under the Debt Management Services Act (63 P.S.
24 et seq.).
23Debt Management Services Companies must maintain a bond in an amount greater than the
total amount of Pennsylvania consumer funds that the institution holds directly or in trust at
any time.
240thers include Collector Repossessors licensed under the Motor Vehicle Sales Finance Act (69
P.S. 601 et seq.).
25Loan Brokers
26r~ortgage Broker- min. bond $90,000; Mortgage Lenders- min bond $200,000; Mortgage
Servicers- min. bond $200,000
27Mortgage Servicers
Sfmt 6601
K:\DOCS\76120.TXT
28Registration/Nr--1LS Licensing Fee

29SBA (7A) Lender and Business Development Co
30Mortgage Brokers (89) and Mortgage Loan Originators (1,159)
31If annual brokered loans are between $0 and $3MM, minimum bond is $50,000. If annual
broke red loans are between $3MM and $10MM, minimum bond is $75,000. If annual
brokered loans are over $10MM, minimum bond is $100,000. If broker table funds, minimum
bond is $150,000.
3lInciudes 239 collection agencies and 30 insurance premium finance companies
33Includes No Bond/$10,OOO Net Worth (insurance premium Finance companies) Includes Bond
starting at 25,000 in-state and 35,000 out-of-state/NW 15,000 (collection agencies)
213
Fmt 6601
TERRI
76120.154
eJi1
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
Institutions Supervised - Part XI
PO 00000
Frm 00220
Sfmt 6601
214
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.155
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
Institutions Supervised - Part XI
PO 00000
Frm 00221
Sfmt 6601
215
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.156
VerDate Nov 24 2008

16:07 Mar 28, 2013
Jkt 076120
!If:!r:~!~ 'r.;i;m!!lir;H:~I.R:r~ii;:H: ~I;I" Hrr.:iI';'WH: Hbif;i'm[ ;mM'I!~eprii';f:HH;~;mF.1
r'i"ii:,ij,j:ir :u'r ,ii:f:m:!;i!; ,~:j'i!~fli:!r.!,ij;iii !!~H;i'il~;im'm
JIIlI5ItitiUlltl~I!1iSI Siupell'Vii5lE1ld ~.
priiJ!1I1 XI
PO 00000
Frm 00222
Sfmt 6601
216
Fmt 6601
K:\DOCS\76120.TXT
TERRI
76120.157
NR: Not Reported.

The following state banking departments did not participate in this chart: Guam, New ("lexiCa,
Virgin Islands.
lForeign Banking Organizations
2Non'depository trust only banks.
JAlso included in Banker's Banks total
4Deposits are backed by the full faith and credit of the state of North Dakota
5Data is stored offsite
6Building & Loan Association
7The division regulates three nondeposltory trust companies

House Hearing, 112TH Congress - Examining Consumer Credit Access Concerns, New Products, and Federal Regulations

Enviado por

Dados do documento

Título original

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

House Hearing, 112TH Congress - Examining Consumer Credit Access Concerns, New Products, and Federal Regulations

Enviado por

Direitos autorais:

Formatos disponíveis

EXAMINING CONSUMER CREDIT ACCESS

CONCERNS, NEW PRODUCTS, AND

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

COMMITTEE ON FINANCIAL SERVICES

JULY 24, 2012

Printed for the use of the Committee on Financial Services

Serial No. 112149

For sale by the Superintendent of Documents, U.S. Government Printing Office

VerDate Nov 24 2008

16:07 Mar 28, 2013

HOUSE COMMITTEE ON FINANCIAL SERVICES

BARNEY FRANK, Massachusetts, Ranking

JAMES H. CLINGER, Staff Director and Chief Counsel

VerDate Nov 24 2008

16:07 Mar 28, 2013

SHELLEY MOORE CAPITO, West Virginia, Chairman

CAROLYN B. MALONEY, New York,

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

Hearing held on:

Capito, Hon. Shelley Moore:

VerDate Nov 24 2008

16:07 Mar 28, 2013

Munn, Hon. John:

VerDate Nov 24 2008

16:07 Mar 28, 2013

EXAMINING CONSUMER CREDIT ACCESS

U.S. HOUSE OF REPRESENTATIVES,

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

Ms. GARDINEER. Thank you. Good morning, Chairwoman Capito,

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

Mr. MUNN. Good morning, Chairwoman Capito, Ranking Member

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008

16:07 Mar 28, 2013

VerDate Nov 24 2008